Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698940995714.pdf (South Africa)
Thursday, 25 November 2021] No 157—2021] THIRD SESSION, SIXTH PARLIAMENT PARLIAMENT OF THE REPUBLIC OF SOUTH AFRICA _____________________ ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS _____________________ THURSDAY, 25 NOVEMBER 2021 _____________________ TABLE OF CONTENTS ANNOUNCEMENTS National Assembly and National Council of Provinces 1.
Classification of Bills by JTM .......................................................................................... 2 COMMITTEE REPORTS National Assembly and National Council of Provinces 1.

Ethics and Members’ Interests ......................................................................................... 4 National Assembly 1.

2.

3.

4.

5.
Agriculture, Land Reform and Rural Development ..................................................... ....9 Health ........................................................................................................................... ..55 International Relations and Cooperation ...................................................................... 111 Public Service and Administration ............................................................................... 151 Public Service and Administration ............................................................................... 174 1 Public Service and Administration ............................................................................... 193 6.
Public Service and Administration ............................................................................... 210 7.

Public Service and Administration ............................................................................... 225 8.

9.

Defence and Military Veterans ..................................................................................... 237 10.

Defence and Military Veterans ..................................................................................... 253 11.
Defence and Military Veterans ..................................................................................... 272 Finance ......................................................................................................................... 297 12.

Finance ......................................................................................................................... 333 13.
Finance ......................................................................................................................... 354 14.

15.

Transport ...................................................................................................................... 367 Public Enterprises ......................................................................................................... 375 16.

National Council of Provinces 1.


Transport, Public Service and Administration, Public Works and Infrastructure ........411 ANNOUNCEMENTS National Assembly and National Council of Provinces The Speaker and the Chairperson 1.

Classification of Bills by Joint Tagging Mechanism (JTM) (1) The JTM in terms of Joint Rule 160(6) classified the following Bill as a section 76 Bill: (a) Division of Revenue Amendment Bill [B 19 – 2021] (National Assembly – sec 76).
(2) The JTM in terms of Joint Rule 160(6) classified the following Bill as a Money Bill: (a) Adjustments Appropriation Bill [B 20 – 2021] (National Assembly – sec 77).

Correction of ATC of 24 November 2021: (3) The JTM in terms of Joint Rule 160(6) classified the following Bill as a section 75 Bill: (a) Tax Administration Laws Amendment Bill [B 23 – 2021] (National Assembly – sec 75).

2 COMMITTEE REPORTS National Assembly and National Council of Provinces 3 1.
REPORT OF THE JOINT COMMITTEE ON ETHICS AND MEMBERS’ INTERESTS ON THE COMPLAINT AGAINST HONOURABLE FAIEZ.

JACOBS, MP The Joint Committee on Ethics and Members’ Interests (“the Committee”) having considered the complaint against Hon.

Faiez.

Jacobs, MP, reports its finding and its recommendation on penalty, in terms of item 10.7.8.1 of the Code of Ethical Conduct and Disclosure of Members’ Interests (“the Code”), as follows.
INTRODUCTION The Office of the Registrar of Members’ Interests received a complaint from Hon.

Alexandra Abrahams, MP (“the Complainant”) against Hon.

Faiez Jacobs, MP (“the Member”) on 2 July 2021 for an alleged breach of the Code.

SUMMARY OF THE COMPLAINT The Complainant alleges that she and the Member are participants on a WhatsApp group chat (“the group chat”) for the Bonteheuwel Community in the Western Cape.

A Ward Councillor, Mr. Angus Mckenzie is also a participant on the group chat.
He deposed to an affidavit in support of the complaint against the Member.

The allegation is that the Member posted approximately 26 messages on the group chat referring to Mr. McKenzie as a “housenigger”.

The Complainant states that this conduct is unbecoming of a Member of Parliament.

SUMMARY OF RESPONSE BY THE MEMBER The Member submitted a written response to the complaint wherein he indicates that the complaint is frivolous, vexatious and unfounded.
He indicates that the group chat started as a platform for Covid-19 updates during March 2020 and then it grew to include people who were not resident in Bonteheuwel.

The focus and tone of the group chat shifted.

The Member indicates that he and other members of the African National Congress (ANC) who are participants on the group chat were often insulted by Mr. Mckenzie.
In response to one of the insults on 23 April 2020 he posted the following on the group chat: 4 “if a house nigger was a person, it would be him”.

The Member states that Mr. Mckenzie strongly identifies as a “Coloured” South African and he often refers to himself as the “drunk uncle in the family’.

That during the period of April 2020 to 6 May 2020 Mr McKenzie never objected to the references made toward him.
The Member further states that the group chat dealt with matters of politics, and community related matters.

He also states that the Complainant only filed the complaint for political gain and motif.

Also, that Mr. McKenzie should have deposed to the main affidavit and not Hon.

Abrahams, MP.

COMMITTEE DELIBERATIONS The Committee considered the origin of the term “Housenigger”.

The term was used during the slave era to refer to a black person as being subservient and accultured.
It was also used to refer to a black slave domestic worker.

The slave assumed the identity of the House Master for whom he worked.

In this way the slave lost his identity and dignity.

The Committee noted that slave people were people of colour, i.e.

black.

The usage of the term is derogatory and racist.

The Committee noted that the Member did not deny that he referred to Mr. McKenzie as a “Housenigger” on the group chat.
The Committee also considered it unbecoming of a Member of Parliament to place such comment on a community group chat.

Further that the usage of the term cannot be justified as a means of retaliation to alleged insults hurled at political party members by Mr. McKenzie.
As the word “housenigger” is derogatory, the Committee found that the posting of the term on the group chat constitutes a breach of the Members’ duty to maintain public confidence and trust in the integrity of Parliament and thereby engender the respect and confidence that society needs to have in Parliament as a representative institution.

It further constitutes a breach of the Members’ duty to eradicate all forms of discrimination.
Item 4.1 of the Code provides as follows: “4.1 Members must: 4.1.1 … 4.1.4 4.1.5 maintain public confidence and trust in the integrity of Parliament and thereby engender the respect and confidence that society needs to have in Parliament as a representative institution; and 4.1.6 in the performance of their duties and responsibilities, be committed to the eradication of all forms of discrimination.” Page 2 of 4 5 FINDING The Committee found that the Member breached item 10.1.1.3 of the Code read with item 4.1 i.e.
items 4.1.5 and 4.1.6.

SANCTION The Member was afforded an opportunity to address written representations to the Committee on the sanction.

A summary of the written representations is set out below.
The Member states that – 1. he does not deny using the term “housenigger”; 2. the Committee viewed the term in the wrong context; 3. he did not intend to defame Mr. McKenzie neither did he use the term as a racist term; 4. the Committee should have been aware that the term was used during the period of slavery in the United States of America to refer to slaves who worked in mansions of plantation owners; 5. the expression relates to a slavish mentality and not the fact that the person was black; 6. he has an exemplary record as a Member of Parliament; 7. he has never breached the Code and will do all to ensure that he does not breach the Code in future; 8. he apologised to Mr. McKenzie but Mr. McKenzie has failed to acknowledge his apology.
By apologising, he has shown genuine remorse; 9. he accepts that the usage of the word may have given rise to offence even though it was not his intention to cause offence; 10. the penalty in terms of item 10.7.7.2 should not be applied as it is too severe and the matter does not warrant a serious or severe penalty.
11. he requires reasons why a penalty in terms of item 10.7.7.2 is being considered and not in terms of item 10.7.7.1; 12. he requests the Committee to consider a penalty in terms of item 10.7.7.1(i) of the Code which is a reprimand in the House.

13. he indicates that he reserves his right to have the matter taken on review.

COMMITTEE RECOMMENDATION ON SANCTION The Committee noted that most of the factors raised in the written representation was already discussed at the time of the finding of breach.
Page 3 of 4 6 The Committee is bound to consider a sanction in terms of item 10.7.7.2 of the Code as that provision instructs that, where there is a finding of breach in terms of item 10.1.1.3, the Committee cannot impose the penalties mentioned in item 10.7.7.1 of the Code.
The Committee therefore, in terms of item 10.7.7.2 of the Code recommends to the House to impose a penalty as follows: “That the Member enter a public apology in the House for using the derogatory and discriminatory term “housenigger” to refer to Mr. McKenzie on a WhatsApp group chat that consisted of members of the community and members of various political parties.
“ REPORT TO BE CONSIDERED BEKIZWE NKOSI LYDIA MOSHODI CO-CHAIRPERSONS OF THE JOINT COMMITTEE ON ETHICS AND MEMBERS’ INTERESTS Page 4 of 4 7 National Assembly 8 BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON AGRICULTURE, LAND REFORM AND RURAL DEVELOPMENT: VOTE 29, DATED 23 NOVEMBER 2021 The Portfolio Committee on Agriculture, Land Reform and Rural Development (hereinafter referred to as the Committee), having considered the 2020/21 financial year performance and expenditure of the Department of Agriculture, Land Reform and Rural Development and the relevant National Public Entities as listed on Table 1, reports as follows: 1.
INTRODUCTION This report accounts for the process embarked upon by the Portfolio Committee on Agriculture, Land Reform and Rural Development to consider the 2020/21 Annual Reports for Vote 29, which constitutes the Department of Agriculture, Land Reform and Rural Development (hereinafter referred to as the Department) and the relevant National Public Entities.
The reports were tabled in Parliament by the Minister of Agriculture, Land Reform and Rural Development from 30 September to 12 November 2021; and were presented at briefing sessions with the Committee as shown in Table 1 below.

This report is compiled in terms of the Money Bills Amendment Procedures and Related Matters Act, 2009 (Act No.9 of 2009).
The Act requires the National Assembly to conduct annual assessment of the performance of each national department, giving particular focus to the medium-term estimates of expenditure.

Section 5 of Act No.

9 of 2009 sets out a procedure for assessing the performance of each department by the National Assembly.

It further requires committees of the National Assembly to prepare budgetary review and recommendation reports (BRRRs).
The report is a culmination of the assessment of the Department and the relevant entities’ service delivery performance within the allocated resources; the effectiveness and efficiency of the Department’s use and forward allocation of available resources.
It therefore accounts for work carried out by the Committee during assessment of the 2020/21 performance of the Department and relevant entities; and also makes recommendations for service delivery improvements to the Minister of Agriculture, Land Reform and Rural Development.
1 9 Table 1: Briefing Sessions by the Department and its Public Entities Department and Public Entities Date of briefing Department of Agriculture, Land Reform and Rural Development 09 November 2021 Commission on Restitution of Land Rights Office of the Valuer-General South African Veterinary Council Agricultural Research Council Onderstepoort Biological Product National Agricultural Marketing Council Perishable Products Export Control Board KwaZulu-Natal Ingonyama Trust Board 09 November 2021 09 November 2021 09 November 2021 12 November 2021 12 November 2021 12 November 2021 12 November 2021 16 November 2021 1.1.
Mandate of the Portfolio Committee on Agriculture, Land Reform and Rural Development The mandate of the Committee is derived from Sections 55 and 56 of the Constitution of the Republic of South Africa and provisions that are contained in the Rules of the National Assembly.
The Committee is mandated to consider, amend and/or initiate legislation that is specific to, or impacts on agriculture, land reform and rural development; monitor and oversee the activities and performance of the Ministry, the Department of Agriculture, Land Reform and Rural Development (DALRRD or Department) and its Entities.
The Committee’s mandate is to also consider and review the budget of the Department and its entities; consider sector- related international treaties and agreements; and provide a platform for the public to participate and present views on specific topics and/or legislation in relation to the sector.

1.2.
1.2.

Purpose of the Budgetary Review and Recommendation Report The process for the budgetary review and recommendation is set out in Section 5 of the Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No.

9 of 2009).

The Act sets out the process that allows Parliament’s National Assembly, through its Committees, to make recommendations to the Minister of Finance to amend the budget of a national department.
The Budgetary Review and Recommendation Report (BRRR) for each department that falls under 2 10 each National Assembly Committee’s responsibilities, in this case, the Department of Agriculture, Land Reform and Rural Development:  must provide an assessment of the Department’s service delivery performance given available resources;  must provide an assessment on the effectiveness and efficiency of the Department’s use and forward allocation of resources; and  may include recommendations on the forward use of resources.
The BRR Report may also act as a source documents for the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-term Budget Policy Statement (MTBPS).

1.3.

Preparation for the BRR Report In preparation for the BRR Report and in compliance with its mandate as set out in Section 5(1) of the Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No.
9 of 2009), the Committee undertook the following activities in 2020/21: 1.3.1 Briefings by the Department on quarterly performance and expenditure reports of the Department for the 2020/21 financial year.

1.3.2 Oversight visit to KwaZulu-Natal (KZN) in August 2021 to oversee the impact of the unrest on the agricultural and agroprocessing value chain, agrologistics and damage to infrastructure; as well as Government’s response and plans to address the resultant impact and relevant infrastructure damage.
1.3.3 Held briefings and considered the medium term Strategic Plan, the Annual Performance Plan and Budget of the Department for the 2020/21 financial year, including those of its entities, as listed on Table 1.

1.3.4 Received inputs and a briefing on the 2020/21 Annual Reports of the Department and its entities from the Auditor-General of South Africa.
1.3.5 Subsequently, on the 9th, 12th and 16th November 2021, the Committee held briefings and considered the Annual Reports of the Department and its entities for the 2020/21 financial year.

3 11 1.3.6 The BRR Report also draws from other briefings and inputs that the Committee received throughout the 2020/21 financial year; and the 2021/22 financial year to date.

1.4.
1.4.

Outline of the Contents of the Report The Report reflects on Government key policy areas including those of the Department as they relate to the national Government Priority Outcomes; the Department and the entities’ financial and service delivery performance for the 2020/21 financial year to date; and observations and recommendations from annual reports and other Committee engagements with the Department and entities including those from oversight visits.

2.
2.

OVERVIEW OF THE KEY RELEVANT POLICY FOCUS AREAS The 2020/21 financial year has been a transitional year for the Department as it was undergoing the process of amalgamation of the former DAFF with the former DRDLR in line with the new Administration’s reconfiguration.

The Department’s plans were informed and aligned with government-wide planning and policy mandates particularly the National Development Plan (NDP), as well as other sectoral policies.
2.1 The National Development Plan: Vision 2030 The NDP’s overarching aim is to eliminate poverty and reduce inequality by 2030.

The Plan recognises that South Africa needs an inclusive economy that is more dynamic and in which the fruits of growth are shared equitably amongst its citizens.

Chapter 6 of the NDP titled, “inclusive rural economy”, outlines the NDP’s vision for the development of rural areas.
Its focus is sustainable land reform and agrarian transformation, which encompasses the mandate of the Department.

The NDP is implemented in 5-year phases, which are outlined in Government’s MTSFs.

Agriculture is identified in the NDP as one of the key sectors through which increased employment and poverty alleviation can be achieved.

In this regard, approximately 1 million new jobs and a trade surplus are expected to be created from agriculture, agro processing and related sectors by 2030.
The NDP further expects that a third (33%) of the food trade surplus should be produced by smallholder producers by 2030.

4 12 With regards to land reform, the NDP sets a target to redistribute 16.5 million hectares or 20 per cent of commercial agricultural land by 2030.

By 2018, Government had redistributed close to 10 per cent of commercial agricultural land.

It thus suggests that in the next 10 years, over 10 per cent of commercial agricultural land must be redistributed.
2.2 Medium Term Strategic Framework 2019-2024 The MTSF is the Government’s strategic plan for the 2019-2024 period.

It is a five-year implementation phase of the NDP that is outcomes-based.

It takes into account the New Growth Path (NGP), the Industrial Policy Action Plan (IPAP) and other Government policy foci.

The MTSF 2019-2024 is the second implementation plan of the NDP, following the MTSF 2014- 2019.
The MTSF’s aim is to ensure policy coherence, alignment and coordination across Government Plans, as well as alignment with budgeting processes.

The MTSF 2019-2024 aims to address challenges of poverty, inequality and unemployment through the following pillars:    Achieving a more capable state; Driving a strong and inclusive economy; and Building and strengthening the capabilities of South Africans.
The above three pillars underpin Government’s seven Key Priorities that have been adopted to implement the current MTSF.

The 7 Key Priorities are expected to be achieved through the joint efforts of government, the private sector and civil society.

For each MTSF Priority, a number of Outcomes and associated interventions are outlined in an Implementation Plan and a Monitoring Framework by which each relevant Department’s performance is going to be assessed by the Presidency in the five-year period.
The Department directly contributes to five (5) of the seven (7) Key Priorities, namely:      Priority 1: A capable, ethical and developmental state Priority 2: Economic transformation and job creation Priority 3: Education, skills and health Priority 5: Spatial integration, human settlements and local government Priority 7: A better Africa and world 5 13 3.
OVERVIEW OF THE STRATEGIC FOCUS OF THE DEPARTMENT OF AGRICULTURE, LAND REFORM AND RURAL DEVELOPMENT 3.1 The Department of Agriculture, Land Reform and Rural Development and its Core Functions The main aim of the Department of Agriculture, Land Reform and Rural Development is to provide equitable access to land, integrated rural development, sustainable agriculture and food security for all.
The Department’s legislative mandate is derived from the following Sections of the Constitution of the Republic of South Africa, 1996: • • • Section 24(b)(iii) (environment and natural resources clause) and 27(1)(b) (food and water clause) that cover the agricultural value chain and resources.

Section 25 (property) that establishes the framework for the implementation of land reform.
Section 27(1) (health care, food, water and social security clause) that establishes the framework for the implementation of the comprehensive rural development programme.

The Department executes its legislative mandate by implementing, managing and overseeing no less than 35 key pieces of legislation that cover inter alia land acquisition, restitution and use; agricultural production and its value chain regulation; conservation of resources and the establishment of the Department’s public entities.
The strategic focus of the Department in the current five-year strategic framework period is to accelerate land reform, catalyse rural development and improve agricultural production to stimulate economic development and food security.

Based on this strategic focus, the Department has developed seven Strategic Outcomes for the current MTSF period aligned to MTSF priorities as shown in Table 2 below.
Table 2: Alignment of Department Outcomes and the 2020-2024 MTSF Priorities Department Outcome (OC) MTSF Priority (P) OC1.

Improved governance and service excellence P1: A capable, ethical and developmental state OC2.

Spatial transformation and effective land P5: Spatial integration, human settlements & administration local government OC3.

Redress and equitable access to land and P2: Economic transformation & job creation and producer support P5 6 14 OC4.
Increased production in the agricultural sector P2 and P3: Education, skills and health OC5.

Increased market access and maintenance of P2 and P7.

A better Africa & world existing markets OC6.

Integrated and inclusive rural economy P2 and P5 OC7.
Enhanced biosecurity and effective disaster P5 risk reduction The Department has six programmes through which it will measure its Strategic Outcomes, namely:     Programme 1 - Administration: It is responsible for provision of strategic leadership, management and support services to the department.
Programme 2 - Agricultural Production, Health, Food Safety, Natural Resources and Disaster Management: It oversees livestock production, game farming, animal and plant health, natural resources and disaster management.
Programme 3 - Food Security, Land Reform and Restitution: Acquires and distributes land and promotes food security and agrarian reform programmes Programme 4 - Rural Development: It is responsible for initiation, facilitation, coordination and act as a catalyst for the implementation of a comprehensive rural development programme leading to sustainable and vibrant rural communities.
 Programme 5 - Economic Development, Trade and Marketing: it promotes economic development, trade and market access for agricultural products; and forester international relations for the sector.

 Programme 6 - Land Administration: It provides geospatial information, cadastral surveys, deeds registration and spatial planning in addition to technical services in support of sustainable land development.
3.2 The Department’s Key Policy Developments 3.2.1 The National Food and Nutrition Security Policy is a collaboration between the Department, the Department of Social Development and Department of basic Education that was approved by Cabinet in September 2013.

The Policy seeks to ensure the availability, accessibility and affordability of safe and nutritious food at national and household levels.
Coordination of Food Security including the implementation of the Policy is administered at the Office of the Deputy President.

7 15 3.2.2 The National Policy on Comprehensive Producer Development Support, which has been under development for several years, is still awaiting Cabinet approval since 2019/20.
The Policy seeks to guide and regulate support that is provided to producers and is expected to play a central role in ensuring that adequate and appropriate support is provided to different farmer categories in order to realise the NDP objectives for the sector.

It also seeks to strengthen institutional mechanisms to provide timely and standardised support to producers and to mainstream the participation of vulnerable groups in the agricultural value chain.
3.2.3 The Agriculture and Agroprocessing Master Plan is a social compact that will provide a blueprint of developing the agriculture and food sectors through public-private partnerships.

Through the Plan, the Department seeks to transform and restructure the agricultural sector while ensuring the participation and inclusion of black and rural producers in the mainstream economy of the country and globally.
The development of the Plan is coordinated by the National Agricultural Marketing Council, which is currently undergoing a consultation process with relevant stakeholders.

4.
4.

OVERVIEW AND ASSESSMENT OF FINANCIAL PERFORMANCE 4.1 Overview of Vote Allocation and Departmental Expenditure The Department of Agriculture, Land Reform and Rural Development was appropriated a total amount of R15.2 billion in the 2020/21 financial year; and spent approximately R14 billion (92.4 per cent) of the appropriated funds (see Table 3).
The Department’s main cost drivers were transfers and subsidies (grants and entities), which accounted for 40 per cent of the Department’s total expenditure with R5.68 billion.

Transfers and subsidies were followed by goods and services as well as compensation of employees, with expenditure of R3.7 billion each (i.e.

each accounting for 27 per cent of the Department’s total expenditure).

Payment for capital assets accounted for 6 per cent of total expenditure.
All Programmes underspent on compensation of employees and the main reason provided was delays in filling of positions as the Department was in the process of matching and placing staff due to the merger of the two Departments.

In light of the Department’s capacity challenges, underexpenditure for compensation of employees (COE) remains a concern.

In the year under 8 16 review, underexpenditure on COE was R366.4 million, which is approximately 32 per cent of the R1.15 billion that was not spent (Table 3).
Table 3.

The Department’s Budget and Expenditure for the 2020/21 Financial Year Programme Adjusted Appropriation Virements Final Appropr.

Actual Expend.

Variance Expend.

as % of Final Appropr.


R'000 R'000 R'000 R'000 R'000 Administration 2 817 077 302 572 3 119 649 3 119 503 146 100,0% Ministry Departmental Management Internal Audit Corporate Services Financial Services Provincial Coordination Office accommodation 63 564 140 250 52 950 856 002 248 544 439 142 1 016 625 (22 754) 1 678 151 42 48 347 2 118 145 331 127 701 Agric.

Prod, Health, Food, Safety, Nat.


Res & Disaster Man 2 960 049 - - 118 - 2 26 - - 100,0 99,9 100,0 100,0 100,0 100,0 100,0 127 277 95,7% Inspection and Quarantine Services Plant Production and Health Animal Production.

& Health Nat.

Res & Disaster Management.
Agricultural Research Council 573 355 22 853 540 534 5 005 327 624 268 616 1 249 920 (4 584) - - (167) - - 98,4 99,8 65,7 96,0 100.0 Food Security, Land Reform & Restitution 6 986 096 -218 831 6 767 265 5 915 425 851 840 87,4% Food Security Land Tenure Reform 2 068 071 454 903 -24 000 -17 396 2 224 059 433 882 1 440 239 432 280 783 820 1 602 Land Acquisition & Redistribution 699 364 -19 133 676 326 628 036 Nat.
Ext.. Services & Sector Capacity Farmer Support Property Man & Advisory Services.
Restitution 573 678 9 459 258 282 2 922 339 -20 000 0 -47 309 - Rural Development 770 405 -45 279 725 126 715 087 10 039 98,6% National Rural Youth Service Corps 294 641 0 453 780 -45 279 280 980 429 571 280 979 420 161 1 100,0% 9 410 97,8% 21 984 14 575 13 947 628 95,7% Rural Social Infrastructure Coordination Technology Research & Coordination Economic Dev, Trade & Marketing 656 900 -1 541 655 359 538 049 117 310 82,1% International Relations & Trade 184 642 (1 131) 205 603 191 055 14 548 Cooperatives Development Agroprocessing Marketing & Rural Industrial Dev 33 019 439 239 14 000 (14 410) 44 091 43 836 255 92,9 99,4 Land Administration 1 057 086 -32 170 1 024 916 976 946 47 970 95,3% Nat.
Geomatics Management Services 524 372 -27 925 522 522 483 846 38 676 Spatial Planning & Land use 166 312 -4 245 140 183 131 032 9 151 Registration of Deeds Trade Account 358 034 SA Council of Planners SA Geomatics Council 4 035 4 333 0 0 0 358 034 358 033 4 035 142 4 035 0 142 0,0% 92,6% 93,5% 100,0% 100,0% 1 0 TOTAL 15 247 613 - 15 247 603 14 093 031 1 154 582 92,4% Source: Department of Agriculture, Land Reform and Rural Development Annual Report (2021).
9 17 As a result of underexpenditure during 2020/21, the Department surrendered a total of R1.3 billion to the National Treasury (NT)’s Revenue Fund.

This comprised of R1.15 billion of the Department’s voted funds (Table 3), 66 per cent of which was in goods and services; R22.4 million from Departmental revenue and National Research Foundation (NRF) receipts and R121.7 million from payables.
While reasons for underexpenditure have been provided (see Programmes below), underexpenditure particularly of the voted funds and NRF receipts, is a concern as it might create the impression that the Department does not need the funds, which may negatively impact its future budgetary allocations.
It is noteworthy that 99.6 per cent of the R1.7 billion that was transferred to provinces as conditional grants has been spent, with 100 per cent expenditure on both Comprehensive Agricultural Support Programme (CASP) and Ilima/Letsema.

The R6.6 million that was not spent was in respect of the LandCare transfers that were withheld for Gauteng, Limpopo and North West provinces due to unsatisfactory financial performance.
The latter is a continuing transgression for Gauteng Province as in the previous two financial years, LandCare transfers to the province were withheld due to non-compliance with the Division of Revenue Act (DORA).

4.1.1 Irregular expenditure The Department incurred total irregular expenditure amounting to R203.8 million, which was largely historic from both former Departments.
The majority of the irregular expenditure, worth R202.7 million (99.5 per cent) was due to non-compliance with supply chain management (SCM) procedures and both former Departments were guilty of the transgressions.

About R1 million of the irregular expenditure was overpayment on recapitalisation and development.
4.1.2 Fruitless and wasteful expenditure During the 2020/21 financial year, the Department incurred fruitless and wasteful expenditure of approximately R44.5 million, which was also largely historic from both former Departments.
The majority of the fruitless and wasteful expenditure worth R29.17 million was due to non- delivery of veterinary mobile clinics by a service provider, attributed to the former DAFF; R8.8 million was interest paid on late payment of invoices; R5 million was interest paid as compelled 10 18 by court and R1.3 million was due to non-attendance of training.
The former DAFF previously reported that the fruitless and wasteful expenditure worth R29.17 million due to non-delivery of veterinary mobile clinics was a legal matter.

An update in this regard was sought from the Department.
4.2 Financial Performance per Programme during the 2020/21 Financial Year 4.2.1 Programme 1: Administration The Administration Programme, which had the second highest allocation from the Department’s total budget, spent almost 100 per cent of its appropriated budget during the 2020/21 financial year.
The majority of the expenditure in the Programme was in respect of Compensation of Employees (COE), which accounted for approximately R1.3 billion and office accommodation (operating leases and property payments) under Goods and Services, which accounted for R1 billion of the expenditure.

The R146 million that was not spent in the Administration Programme was mostly in respect of compensation of employees under the Departmental Management subprogramme.
4.2.2 Programme 2: Agricultural Production, Health, Food Safety, Natural Resources and Disaster Management In Programme 2, the Department spent 95.7 per cent of its appropriated R2.95 billion, which is the third largest allocation from the Department’s total budget.
The expenditure in the Programme was largely driven by the transfer of R1.2 billion to the ARC (approximately 44% of the Programme’s total budget); as well as allocations to the Inspection and Quarantine Services subprogramme (R582.3 million) and Plant Production and Health subprogramme (R544.3 million).
The total underexpenditure of R127.3 million was in respect of compensation of employees (COE), which totalled R120.7 million across all subprogrammes; and the R6.6 million in respect of LandCare transfers that were withheld to Gauteng, Limpopo and North West provinces.

The withholding of LandCare funds has been also reported in the previous financial year for Gauteng Province.
The most significant underexpenditure on COE was in the Animal Production and Health subprogramme, which accounted for R106.4 million (88 per cent) of the R120.7 million.

11 19 4.2.3 Programme 3: Food Security, Land Reform and Restitution Programme 3 received the largest appropriation of R6.77 billion from the Vote, with Restitution and Food Security accounting for more than two thirds of the Programme’s appropriation.
The Department spent 87 per cent of the allocated budget for Programme 3, which also registered the highest underexpenditure across all programmes, of R851.8 million.

The Restitution subprogramme was the main cost driver accounting for 46.5 per cent (R2.75 billion) of the total allocation for Programme 3, followed by the Food Security subprogramme with R1.44 billion (24 per cent) and to a lesser extent, the Land Acquisition and Redistribution subprogramme with R628 million (10.6 per cent).
Approximately 92 per cent of the R851.8 million underspending was incurred in the Food Security subprogramme, which underspent R783.8 million.

Approximately R757.3 million of the latter underexpenditure was attributed to a late receipt of R1 billion allocation for the Presidential Employment Stimulus Initiative (PESI) that was introduced in order to provide relief to distressed farmers affected by the COVID-19 pandemic.
The Department had to then verify a large number of farmers who applied, which resulted in issuing of vouchers being delayed.

Long processes of verification of a significant number of farmers who applied and late issuance of vouchers could mean that the Department had no systems in place to deal with demand for financial assistance at scale expected.
The Department has since requested the National Treasury for the rollover of the funds as verification was finalised late and vouchers were issued to farmers in the new financial year.

4.2.4 Programme 4: Rural Development This programme involves initiation, facilitation, and coordination of, as well as acting as a catalyst for, the implementation of comprehensive rural development.
The programme received a final appropriation of R725.1 million and its expenditure at the end of the financial year was R715 million (98.6 per cent) It recorded an underexpenditure of R10 million (1.4 per cent).

Rural development was organised under three sub-programmes; namely National Rural Youth Service Corps (NARYSEC), Rural Social Infrastructure (RSI), and Technology, Research and Coordination (TRC).
Except for NARYSEC which recorded 100 per cent expenditure (R280.9 million), RSI and TRC performance were 97 per cent and 95 per cent respectively.

The 12 20 temporary closure of Technical and Vocational Education and Training colleges (TVETs) as a result of COVID-19 pandemic impacted the programme negatively because limited training and development of rural youth could be provided.
Whilst NARYSEC recorded 100 per cent expenditure of its budget allocation, critical questions need to be asked about the long-term effect of this programme on youth empowerment and its sustainability.

In this regard, it is important to find out where the graduates of this programme are in terms of participation in the economy.
4.2.5 Programme 5: Economic Development, Trade and Marketing Of the R655.3 million that was appropriated for Programme 5, the Department spent R538 million, which is 82 per cent of the Programme’s appropriation.
Approximately 62 per cent (R405.7 million) of the Programme’s total allocation went to the Agroprocessing, Marketing and Rural Industrial Development subprogramme, through which transfers to the NAMC are also made; 31 per cent went to the International Relations and Trade subprogramme and the rest to the Cooperatives Development subprogramme.
The underexpenditure of R117.3 million (18 per cent) was largely attributed to R102.6 million underspending for COE under the Agroprocessing, Marketing and Rural Industrial Development subprogramme.

Under the International Relations and Trade subprogramme, the R14.5 million underspending on foreign governments and international organisations was attributed to delays in the approval of a transfer for membership fees to the Food and Agriculture Organisation of the United Nations (FAO).
4.2.6 Programme 6: Land Administration The Land Administration Programme deals with geospatial information, cadastral surveys, deeds registration and spatial planning to ensure spatial transformation and effective and efficient land administration.

It received a final allocation of R1.02 billion and its expenditure for 2021 was R976.94 million.

The programme recorded an under expenditure of R47.97 million (4.7 per cent of its total budget).
It was explained that the recorded underexpenditure was due to delays in the filling of vacant posts pending the finalisation of the micro- organisational structure and the delays in the implementation of national geomatics services, spatial planning and land use management projects.

Both National Geomatics and Spatial Planning and Land Use sub-programmes had expenditure rate of 92 and 93 per cent 13 21 respectively.
The Registration of Deeds Trading Account (DRTA), discussed later in this report, and the South African Council of Planners recorded 100 per cent expenditure of R358 million and R4 million respectively.
4.3 Report of the Audit Committee The Department has an independent Audit Committee that provides independent oversight over the Department’s financial management and reporting, governance, risk management, internal control, compliance, performance information management, internal and external audits, and information and communications technology (ICT) functions.
The Audit Committee is supported by the Internal Audit Unit, which undertakes risk based audit assignments to evaluate the adequacy and effectiveness of the internal controls and the control environment.

The Audit Committee meets on a quarterly basis to receive and review reports from Management, make recommendations and review progress on actions to address findings of both the Auditor- General of South Africa (AGSA) and the Internal Audit Unit.
The Audit Committee (AC) was satisfied with effectiveness of the Internal Audit function, which took into consideration the risks pertinent to the Department its audits and made significant progress with audits conducted in terms of its strategic three-year rolling Internal Audit Plan.
The AC noted that the system of internal controls within the Department was not entirely effective and significant control deficiencies were noted in the areas of:        Information and Communication Technology (ICT); Records Management; Compliance Management; Project Management; Contract Management; Financial Management; Property Management; and  Management of Fraud, Corruption, Misconduct, Irregularities and Mismanagement.
The AC expressed serious concern with inadequate internal control structures to prevent and detect fraud and the incidences of fraud identified in the Department.

It also expressed 14 22 concern with in-year monitoring and reporting in respect of the progress made in the achievement of planned performance targets.
4.4 Report of the Auditor-General of South Africa The Department of Agriculture, Land Reform and Rural Development (hereinafter referred to as the Department) received an unqualified audit opinion from the Auditor-General of South Africa (AGSA) with matters of emphasis and repeat findings.
The AGSA drew attention to the following: 4.4.1 Emphasis of matters  Significant uncertainties in respect of claims worth R1.1 billion that were instituted against the Department and are subject to the outcome of legal proceedings.

 Impairments – provision for R100.8 million in relation to the impairment of accrued Departmental revenue and R19.99 million in relation to impairment of receivables.

4.4.2 Non-compliance with legislation i.e.


the Public Finance Management Act (PFMA) (Act No.1 of 1999) and National Treasury Regulations in respect of Expenditure and Procurement:  Expenditure management: Effective and appropriate steps were not taken to prevent irregular expenditure amounting to R203.8 million as required by Section 38(1)(c)(ii) of the PFMA and Treasury Regulation (TR) 9.1.1.
In addition, effective and appropriate steps were not taken to prevent fruitless and wasteful expenditure amounting to R44.5   million as required by Section 51(1)(b)(ii) of the PFMA.

Payments were not made within 30 days or an agreed period after receipt of an invoice as required by TR 8.2.3.

Procurement and contract management: Some of the invitations for competitive bidding were not advertised for the stipulated minimum period, as required by TR 16A6.3(c).
Some of the bid documentation for procurement of commodities designated for local content and production did not stipulate the minimum threshold for local production and content, as required by the 2017 Preferential Procurement Regulation 8(2).

15 23  Consequence management: Disciplinary steps were not taken against officials who had incurred and/or permitted irregular expenditure, fruitless and wasteful expenditures as required by Section 38(1)(h)(iii) of the PFMA.
4.4.3 Usefulness and reliability of reported performance information, as well as adjustment of material misstatements:  The AGSA identified material misstatements on the reported annual performance information submitted for auditing for Programme 3: Food Security, Land Reform and Restitution.

As the management subsequently corrected the misstatements, AGSA did not raise any material findings on the usefulness and reliability of the reported performance information for Programmes 3.
4.4.4 Deficiencies in internal controls  Leadership was not always effective, as evidenced by the misstatements identified in the Annual Performance Report and non-compliance with laws and regulations.

 Management did not implement effective monitoring of compliance with applicable legislation.

Non-compliance with legislation and supply chain management processes could have been prevented if compliance had been properly reviewed and monitored.
The AGSA reported that the Forestry function, which previously led to a qualified audit opinion for the former DAFF in respect of the accuracy of biological assets, has since been transferred to the Department of Forestry, Fisheries and Environment (DFFE).

The AGSA further drew attention to other reports that have or could potentially have an impact on the Department’s financial statements, reported performance information and compliance with applicable legislation and other related matters, viz.
 The Presidential Proclamation Number R.36 of 2019 (GG 42577 dated 12 July 2019) for the Special Investigating Unit (SIU) to investigate matters related to maladministration in the affairs of the Department in relation to the mismanagement of the Comprehensive Agricultural Support Programme (CASP).

The outcome of the SIU report was pending at the time of the AGSA’s Report on 31 July 2021.
16 24 4.5 Discussion on Financial Performance The newly-merged Department was commended for the unqualified audit opinion, particularly the submission of financial statements for auditing that were without material misstatements.

Notwithstanding the unqualified audit opinion from the AGSA, the Committee is concerned with the audit findings and highlighted the weaknesses and challenges that have been raised by the Department’s Audit Committee and AGSA.
The Department’s expenditure management particularly poor monitoring and reporting, lack of consequence management and deficiencies in internal controls were highlighted as areas of serious concern in light of the high irregular expenditure and the incurred fruitless and wasteful expenditure.
The failure to pay invoices within 30 days, which cost the Department R8.8 million in interest, also remains a concern as it has a negative impact not only on Departmental resources but on suppliers and service providers particularly small, medium and micro enterprises (SMMEs).

It was recognised that the Department has a challenge with effective and efficient spending of its budget as planned and on planned targets to ensure optimal service delivery and value for money.
This is worrisome as the Committee recognises that inadequate funding remains a key challenge to ensure that the Department carries out all its mandated activities as highlighted in the NDP and other Government directives such as the State of the Nation Address (SONA) and the Presidential Economic Stimulus Initiative (PESI).
As much as the Department and some of its entities are underfunded, inability to efficiently utilise appropriated funds as planned, may negatively impact the Department’s future budget allocation from the National Treasury.

In the year under review, the Department had to surrender R1.15 billion of voted funds back to National Treasury as a result of underexpenditure, which was mostly in respect of PESI and unfilled vacancies.
As much as Covid-19 pandemic and the merger of the two former Departments have been blamed for inability to timeously utilise funds, motivation for additional funding becomes difficult when a Department is not prudent and efficient in the utilisation of allocated resources.
The 100 per cent spending of conditional grants specifically CASP and Ilima/Letsema is commended, however, timeous verification and reliability of reported information is still a major concern as AGSA identified material misstatements in Programme 3.

This makes it a challenge to measure value for the money that has been invested against service delivery.
The 17 25 Department needs to appropriately respond to matters that are raised by the Internal Audit Unit and the Audit Committee as well as those that are raised by AGSA in Management Reports.

4.6 Human Resource Management Last year the Department reported that the Macro Structure regarding the merger of the two former Departments was finalised and it was busy with the development of the Fit-for-Purpose Structure.
However, it has now reported that it will embark on a Fit-For-Purpose Structure that is aligned to the Strategic Plan, objectives, service delivery model and available budget once the migration process for the lower level positions has been completed.

The migration of senior management has been reportedly completed and officials were issued with letters.
The Department reported that the delay in finalising the migration process for lower level positions was due to lack of participation of Branches in providing information, and further reported that the matter has been escalated to the office of the Deputy Director-General (DDG): Corporate Support Services for intervention.

However, the Committee was not satisfied with the response highlighting the serious impact that non-compliance and lack of consequence management has in the Department.
As an example, despite the extension of the submission of signed performance agreements by senior managers to 31 October 2020 by the Minister of Public Service and Administration (MPSA), the Department’s compliance by senior managers was 73% on 31 October 2020 and 81% by the end of the financial year.

This was attributed to Covid-19 challenges and the merger of the two Departments.
Further, out of 107 misconduct cases, only 39 were finalised (that’s 36%) in the year under review while the rest are still pending.

This was also attributed to Covid-19 restrictions, which impacted scheduling and capacity constraints.
The Committee was not satisfied with the reasons provided regarding delays in the finalisation of the merger and raised serious concerns in light of the delays in the filling of vacancies, which negatively impacts capacity and service delivery as well as challenges with addressing repeat audit outcomes.

The Department ended the 2020/21 financial year with a high vacancy rate of 15.7%, with high numbers of vacancies in the Administration Programme, Programme 2 and Programme 4.
It reported that due to the continued budget cuts imposed by National Treasury, the Department operated under skeletal capacity as vacant unfunded positions were ultimately abolished and filling of positions remained suspended.

However, priority posts have been 18 26 identified for filling by looking at scarce skills and Occupation Specific Dispensation (OSD); and the facilitation of job descriptions and job evaluations exercise for prioritised posts have been completed.
It was noted that lack of capacity may also be correlated to the Department’s continued use of consultants, on whom it spent R56.6 million of voted funds in the year under review.

The funds were for 52 consultants working on 7 projects.
The Committee welcomed the appointment of the Accounting Officer (Director-General) for the Department and hoped that the appointment will result in some positive outcomes in all the audit matters that have been raised by AGSA as well as improvements on service delivery and accountability matters that have been raised by the Committee.
The Department is commended for meeting the 2% employment equity (EE) target for people with disabilities at senior management service (SMS) level but was concerned with the inability to do likewise in the entire Department, where the percentage is 1.5%.

Additionally, the non-achievement of the EE targets for females at the SMS level, where the Department had 40% representation at the end of 2020/21, was also flagged.

5.
5.

OVERVIEW AND ASSESSMENT OF SERVICE DELIVERY PERFORMANCE 5.1 DALRRD Service Delivery Performance for the 2020/21 Financial Year The Department’s overall performance with respect to planned targets was 59%, where 26 targets out of a total of 44 were achieved.

This is not withstanding that the targets were reviewed while some were removed following the adjustment of the national budget by National Treasury in response to the Covid-19 pandemic.
The Committee was not impressed with the performance particularly its impact on service delivery when the Department has utilised 92% of the budget.

For the financial year under review, misalignment of expenditure with actual performance has been more prevalent on Programmes 1, 2, 3 and 6 as illustrated on Table 4 below.

In light of the revision of targets, the Rural Development Programme achieved both planned annual targets for 2020/21.
Programme 1, Administration, did not achieved its two planned targets but utilised 100 per cent of the budget.

Across Programmes, covid-19 restrictions and inability to fill vacancies until the Department’s Fit-For-Purpose structure is finalised, have been mostly cited as reasons for underperformance.

19 27 Table 4.

Summary of Performance Target Achievements & Expenditure for 2020/21 per Programme Programme No.

of Targets Achieved Not achieved 1.

Administration 2.
Administration 2.

Agricultural Production, Health, Food Safety, Natural Resources & Disaster Management 3.

Food Security, Land Reform & Restitution 4.

Rural Development 5.

Economic Development, Trade & Marketing 6.
Land Administration 2 15 13 2 8 4 0 10 5 2 7 2 2 5 8 0 1 2 Percentage achieved Budget spent (R’000) % of budget spent 0% 3,119,503 100% 67% 2,828,021 95.7% 38.5% 5,915,425 87.4% 100% 715,087 98.6% 87.5% 538,049 82.1% 50% 976,946 95.3% TOTAL 44 26 18 59% 14,093,031 92.4% 5.1.1 Programme 1: Administration Although it spent 100 per cent of allocated funds, the Department did not achieve both planned targets for the Administration Programme for the 2020/21 financial year.
Whilst the Department reportedly achieved an unqualified audit opinion from the AGSA, the former DAFF had a qualification due to material findings in respect of the accuracy of biological assets for the Forestry function, which has since been transferred to the Department of Forestry, Fisheries and Environment (DFFE).
The Committee raised a concern with the former DAFF’s continued qualification on Forestry’s biological assets and the subsequent burden that the issue may place on the new Department to which the function has been transferred.

The second target is non-achievement of the target to pay 100% of valid invoices within 30 days upon receipt.
The Department only achieved 86% in this regard; and cited delays in the submission of delivery notes for bulk procurement of laptops and delays in the verification of Information Technology (IT) equipment before processing of invoices.

In this regard, poor planning on the 20 28 part of the Department was highlighted by the Committee, which further highlighted the negative impact of delayed payment of invoices on suppliers and SMMEs.
5.1.2 Programme 2: Agricultural Production, Health, Food Safety, Natural Resources and Disaster Management For Programme 2, the Department achieved 10 out of the 15 planned targets (67%) for the financial year under review, while it spent approximately 96 per cent of the budget.
The achieved targets include amongst others Gauteng and Mpumalanga having delineated agricultural areas; surveillance conducted on plant pests and animal diseases; 100% placement of qualifying veterinary graduates in the compulsory community service (CCS) programme that seeks to address shortage of veterinary services particularly in rural areas; as well as the number of hectares that have been converted from conventional to conservation agriculture.
The achievement of the latter target, which was exceeded, was commended for its contribution to agricultural production and in light of water scarcity and other agricultural disasters that are associated with climate change.

The Department did not achieve the target to implement Kaonafatso ya Dikgomo (KyD), which forms part of the livestock (prioritised) value chain.
It cited delays in physical mobilisation for data analysis due to Covid-19 restrictions on large gatherings, a reason that was not fully acceptable to the Committee as the Department managed to do capacity building of 120 smallholders producers on Crop Suitability to Climate Change during lockdown and within the same Programme 2.

Poor planning was again highlighted as the Cannabis Master Plan was not approved during 2020/21 due to further consultations that the Department needed to do.
Another important target that was not met was the establishment of biosecurity coordinating structures in 5 provinces (Free State (FS), Gauteng Province (GP), Limpopo (LP), Mpumalanga (MP) and North West (NW)).

In this regard the Department only managed to develop draft terms of reference, which were not even consulted with the provinces by the end of the financial year citing rigorous consultations on the concept note.
The Committee was dissatisfied with the reason and highlighted the importance of biosecurity to the sustainability of the agricultural sector including employment creation.

The Committee further made an example with foot-and- mouth disease (FMD) whose outbreak was first reported in early 2019 in Limpopo and has since cost the country its status of a FMD-free zone without vaccination from the World 21 29 Organisation for Animal Health (OIE - Office International des Epizooties).
The outbreak also has an adverse impact on trade and revenue generated from the country’s export of cloven- hoofed animals and/or their products.

Despite assertions from the Department during a Committee briefing then, that the outbreak in Limpopo was under control, the disease has since moved to other areas in the province and Mpumalanga.
5.1.3 Programme 3: Food Security, Land Reform and Restitution In addition to Programme 2, this is one of the key and cost-driving Programmes for the Department as it is responsible for providing frameworks for promoting food security through the development and support of subsistence and smallholder producers to improve their productivity and to enable participation in the sector; acquire and redistribute land; capacity building of extension and advisory services; as well as the development and transformation of Agricultural Colleges.
Therefore, the Programme is central to service delivery.

However, for the 2020/21 financial year, this was the worst performing Programme, with the Department only managing to achieve 38% of the planned targets (5 out of 13).

With the exception of land claims, key targets that are central to the Programme’s purpose were not achieved.
These include amongst others, the number of farms supported through the Land Development Support (LDS) Programme and 50 000 subsistence producers that could not be supported through the Covid-19 Relief Fund.
Food Security subprogramme: In light of the poverty and hunger situation that has been compounded by the Covid-19 pandemic, failure to timeously support subsistence farmers at a time when they needed support the most to enable them to grow their own food was deemed unacceptable and as the Committee lamented the Department’s lack of urgency and poor planning.
Although the Department reported last year that the National Policy on Comprehensive Producer Development Support (NPCPDS) was tabled to Cabinet on 04 March 2020, the planned annual report on the implementation of the policy was not achieved.

The Department cited the long process of engagement at NEDLAC, which meant that the Policy has not been approved by Cabinet.
The delay in the approval of the Cabinet, which has been under development since 2017, was raised as a concern in light of the merger of the two Departments that have been historically implementing different farmer support programmes with more or less similar objectives and targeting the same farmer categories.
The Policy seeks 22 30 to strengthen institutional mechanisms to provide timely and standardised support to producers and to mainstream the participation of vulnerable groups in the agricultural value chain.

Land Reform and Restitution subprogramme entails land redistribution (PLAS), State Land Allocation and tenure reform (labour tenants’ applications, farm dwellers, communal land tenure), and Communal Property Associations (CPAs).

Restitution will be dealt with separately under entities (CRLR).
With regard to acquisition and redistribution of land, the Department reported that the outbreak of Covid-19 and related restrictions with regard to travel and gatherings as well as reprioritisation of budgets in response to the pandemic caused a downward revision of the targets.

Notwithstanding the above, the programmes to redistribute land for the benefit of farm dwellers, labour tenants, people with disabilities and youth exceeded the set targets.
The Department allocated 1 270.5 ha more than was planned for 2020/21.

However, with regards to allocation of state land, 55 167 ha were allocated as opposed to the revised target 401 787 ha.

There was a notable focus on settlement of the labour tenants’ applications in line with the judgement on the matter of Mwelase and Others v Director-General for the Department of Rural Development and Land Reform and Others.

However, only 196 applications were settled as opposed to a target of 450.
The Committee noted that 250 cases where settlement agreements could not be signed were referred to Court.

The Committee commended the Department for exceeding the targets to allocate land to smallholder farmers, farm dwellers and/workers and/or labour tenants.

However, it expressed concerns with regard to the budget cuts which impact on the pace and rate of land delivery.
There was a concerted effort to support CPAs to comply with the relevant legislation, especially about Annual General Meetings (AGMs), annual financial statements submission, election of committees, and regular meetings as per the Constitutions.

Whilst the Department targeted to support 394 CPAs, at the end of the year it had reached 455 CPAs.

The Committee commended the Department for developing, and implementing, a catch up plan after ease of lock down restrictions (level 2 and 1 mainly).
Such level of commitment could not be observed in the implementation of Transformation of Certain Rural Areas Act (Act NO.

94 of 1998) commonly known as TRANCRAA and related annual targets.

The target to transfer properties involving 9 areas was not achieved because COVID-19 regulations reportedly barred them to hold community meetings to take resolutions.
23 31 5.1.4 Programme 4: Rural Development As stated above, this programme involves initiation, facilitation, and coordination of, as well as acting as a catalyst for, the implementation of comprehensive rural development.

Given the prevalence of Covid-19 and related restrictions to travel and gatherings as well as reprioritisation of government funds to respond to covid-19 outbreak, the original number of targets were revised downward.
The target to complete 130 infrastructure projects was removed from the APP for 2020/21.

With this in mind, note that the Department achieved the two revised annual targets for in 2020/21 in terms of infrastructure and NARYSEC.

With regard to infrastructure development, the set target regarding the number of infrastructure projects was exceeded by 21 projects.
Equally, the National Rural Youth Service Corps (NARYSEC) managed to recruit 1926 youth (10 more than the target), a crucial contribution to skilling, empowerment and employment of youth.

Rural development initiatives created jobs for women (9%) and youth (30%).

Whilst the 2020 SONA pronouncements put emphasis on prioritisation of women, youth and people with disabilities in all government programmes or initiatives, this programme has lagged behind.
The Committee expressed concern over the long terms programme impact because evidence around placement/employment and creation of sustainable rural communities was sketchy.

5.1.5 Programme 5: Economic Development, Trade and Marketing The Programme achieved 7 out of 8 planned targets (87.5%).

However, it was noted that most of the achieved targets were reports on trade, bilateral, multilateral and other strategic engagements; and the finalisation of AgriBEE Fund applications that were received.
As the Programme’s mandate is promotion of economic development, trade and market access, it was highlighted that the Department should submit detailed reports on the impact of the trade agreements in the development and transformation of the agricultural sector including specific opportunities it has created and the support that it provides through Programme 5 to ensure smallholder producers have access to export markets.
The only target that was not achieved was the development of the Draft Marketing of Agricultural Products Amendment (MAPA) Bill, citing further consultations with the Office of the State Law Advisor before submission to the Department of Planning, Monitoring and Evaluation (DPME) for the first phase of the 24 32 Socio-economic Impact Assessment System.

The Committee seeks to regularly follow-up on the processing of the MAPA Bill, which has also been under development for more than three years.
5.1.6 Programme 6: Land Administration Land administration deals with geospatial information, cadastral surveys, deeds registration and spatial planning and other technical services in support of sustainable land development.

The ultimate goal is to ensure spatial transformation and effective and efficient land administration.

The Department achieved three of the six revised annual targets, which means a performance rate of 50 per cent.
The Department prioritised development of National Land Information System and completion of Electronic Deeds Registry System (e-DRS).

Completion of Phase 1 of e-DRS could not be achieved because there was no adequate funding.

It thus means that implementation of the Electronic Deeds Registration System Act, 2019 will be delayed.

It is a great concern, especially given the prevailing covid-19 conditions, that transformation of systems to adapt to new technologies were being delayed.
Plans to ensure that Land Administration Legislative Framework (LALF) that ought to be approved were postponed due to budget reprioritisation whereas targets on CPAs was moved to Programme 3.

However, the Department has planned to obtain approval of the Land Administration Framework Bill in 2021/22.

The impact on the removal of the LALF is yet to be seen at the end of 2021/22.
5.2 Discussion on the Department’s Service Delivery Performance Lack of alignment between use of financial resources and performance remains a concern as the Department spent 92 per cent of its budget but achieved less than 60% of its planned annual targets.

Even for the targets that have been achieved, for example in Programmes 4 and 5, impact on service delivery is not evident.
Persistent challenges with usefulness and reliability of reported performance information particularly for activities that are implemented by Provinces through conditional grants, the monitoring and evaluation (M&E) of such activities and grants utilisation remain a challenge.
The effectiveness of the Department’s planning, 25 33 setting of performance indicators and M&E system was questioned as for the third consecutive year, AGSA found material misstatements on the usefulness and reliability of performance information for Programme 3, although these were subsequently corrected.
The reported inability to carry out certain functions due to the national lockdown, which was largely a reason for poor performance in most instances, was unacceptable to the Committee as the hard lockdown was only for 2 months.

For most of the financial year, different lockdown alert levels were introduced that permitted certain activities including domestic travel and gatherings subject to Covid-19 Protocols.

Furthermore, Agriculture was also classified as an essential service.
The delays in getting the National Policy on Comprehensive Producer Development Support approved was seen to show a lack of urgency by the Department in addressing the challenges that are faced by subsistence and smallholder farmers in particular, as has been illustrated by the inability to timeously support subsistence farmers through the Covid-19 Relief Fund, which should have been an emergency intervention to alleviate food insecurity.
Critical work with regard to policy and legislation development was not moving at pace expected.

Among those areas is long outstanding tabling of the Communal Land Tenure Bill and related policy framework as well as the so-called redistribution legislation.

It is noted that these had been dropped from the APP.

However, they are critical component of the mechanisms to address the pressing needs for land to meet multiple livelihoods and a range of uses.

6.
6.

AN OVERVIEW OF THE PERFORMANCE OF THE DEPARTMENT’S ENTITIES 6.1 Agriculture Entities 6.1.1 Agricultural Research Council (ARC) The ARC’s total budget for the 2020/21 financial year remained stagnant at R1.38 billion, which is slightly more than R1.35 from the previous financial year.

The budget comprised of the Parliamentary Grant (PG) worth R985.8 million and self-generated revenue amounting to approximately R393 million.
The ARC spent approximately 88 per cent of its budget of R1.38 26 34 billion and had an operational surplus of R162 million, an improvement from the previous year’s R65 million.

The ARC received a qualified audit opinion from the AGSA for the fifth consecutive year as a result of uncorrected material misstatements and/or supporting in respect of property; plant and equipment.
Although the AGSA recognised some improvement as the entity resolved prior year qualifications on revenue and commitments, there were repeat findings on non-compliance with the PFMA, which resulted in the qualified opinion; on expenditure management, which resulted in irregular expenditure of R2.5 million; and on overall internal control deficiencies.
The ARC reported that investigations on irregular, fruitless and wasteful expenditure have been concluded, resulting in two dismissals, which the Committee welcomed.

Targets achieved: Despite the challenges associated with funding and covid-19 as indicated in some instances, the ARC achieved 70% of the planned annual targets for the 2020/21 financial year (62 out of a total of 88 targets).

In the previous year, it achieved 58%.
Some of the ARC’s key performance highlights that were achieved in 2020/21 include research on the determination of slaughter conditions to optimise visual and eating quality of goat meat; drought response by mega-herbivores under different management regimes; providing scientific support to more than 4 800 smallholder livestock farmers through the Kaonafatso ya Dikgomo (KyD) Animal Improvement Scheme; the ARC’s Veterinary Research and the Biotechnology Platform assisting the National Health Laboratory Services with the testing of Covid-19 samples; and development of novel plant-derived preventative and therapeutic medicines for Covid-19 in South Africa.
While the ARC has performed much better compared to the previous year, the Committee was concerned that the ARC did not meet any of the targets that are related to vaccine production bearing in mind the animal disease challenges that the country faces, particularly foot-and-mouth disease (FMD).

The ARC planned to produce 50 000 doses of the FMD vaccine during 2020/21 but none were produced.
It reported that a delay in the procurement of mid-scale equipment impacted the development and production of FMD vaccines.

The delay in the construction of the FMD Facility for which the ARC received R422.5 million from National Treasury was not acceptable in light of the FMD challenge and its impact on the livestock industry.

The ARC ended the financial year with 227 vacancies (9.7%).

From the total of 227 vacancies, the ARC identified 100 priority positions and 23 of these were filled by year end.
As a result, the ARC spent 57 per cent on personnel costs compared to the previous year’s 62 per cent.

As 27 35 much as the ARC’s vacancy rate was less than 10%, there was a concern that 17% of the vacancies were of qualified professionals and 12% were in senior management.
At executive management there were vacant positions of the position of Group Executive (GE) for Research and Innovation Systems, GE for Human Resources and Legal Services (since November 2020); and since August 2021, the Chief Executive Officer (CEO) position also became vacant.

The process to appoint a CEO was welcomed but there was also emphasis on the filling of the two other executive management positions including the rest of the identified critical positions.
6.1.2 Onderstepoort Biological Products (OBP) As a Schedule 3B entity (i.e.

national government business enterprise), the OBP, which is also a National Key Point, does not receive a Government grant but funds all its operations from self-generated revenue (mostly from sale of animal vaccines and related products).

During 2020/21, the OBP’s revenue increased by 35 per cent from R177 million in 2019/20 to R238 million in 2020/21.
The entity attributed the revenue increase to increase in demand for OBP products from foreign countries.

In light of the resource constraints for the timely completion of the Good Manufacturing Practice (GMP) Project, the OBP acknowledges the importance of cash flow management as it ended the financial year with R274 million, which is R12 million less than in the prior year due to continued investment on the modernisation and refurbishment project.
The OBP received an unqualified audit opinion with material findings from the AGSA for the 2020/21 financial year, which has also been the case in the previous two financial years.

The repeat findings were on non-compliance with the PFMA in terms of material misstatements on financial statements, non-compliance with SCM processes, poor expenditure management as well as internal control deficiencies.
Irregular expenditure has increased significantly from R2 million in 2019/20 to R9 million in the year under review; while fruitless and wasteful expenditure has slightly decreased from R7.4 million in 2019/20 to R4.9 million in 2020/21.

As much as consequence management processes have been implemented, prevention of poor and wasteful expenditure was highlighted as an area for intervention particularly in light of budgetary constraints to finish the modernisation project for GMP Facility.
Implementation of consequence management was appreciated as the OBP reported that disciplinary action has been taken against personnel responsible for the fruitless and wasteful expenditure, which led to dismissals, some investigations are ongoing while some cases have been referred to the 28 36 South African Police Service (SAPS) including details of the companies that colluded with officials.
Targets Achieved: As much as the OBP managed to increase its revenue through vaccine and other product sales, an area in which it has done exceedingly well, the entity’s performance on planned performance targets has not been satisfactory.

It achieved 7out of the planned 16 targets (44%), which is slightly more than the previous year’s 36% achievement.

The OBP did not achieve the target on 100% completion of Phase 1 and 50% completion of Phase 2 of the Good GMP Facility.
This was attributed to lockdown restrictions and dispute that has been raised with the supplier, which has been referred to a legal process.

It reported that work on the project will continues as soon as the legal process is finalised.

Despite the poor overall performance, there were notable achievements in sales, which led to a 35% increase in revenue; and also over achievement in the production efficiency index, number of newly registered suppliers and number of farmers trained in OBP products.
The entity ended 2020/21 with a high vacancy rate of 26% with 21 vacancies in the Clinical Unit (29%) and 28 vacancies in Operations (39%), which was quite a serious concern with the Committee in light of the OBP’s mandate and nature of work.

It was further noted that the entity’s poor performance may also be linked to the instability at senior management level as the CEO has been on suspension and under investigation following a number of allegations against him.
Further, the entity did not have an HR Manager.

Without an HR Manager, the Human Resource Management and Development Programme was the worst performer, achieving none of the 3 planned targets.

6.1.3 National Agricultural Marketing Council (NAMC) For the 2020/21 financial year, the NAMC had a total budget of R77.46 million, which comprised of R47.4 million Parliamentary Grant (PG), R27.3 million from other income and sponsorships received and R2.8 million worth of interest received.
The total budget is slightly less than the previous year’s R81.8 million due to a decline on income and sponsorships received and the PG that has remained stagnant.

The NAMC’s expenditure in the year under review was R75.2 million, which left the entity with a surplus of R2.3 million, which is an improvement from the prior year’s deficit of R1.9 million.
29 37 The NAMC received an unqualified opinion with repeat findings from the AGSA in respect of non-compliance with the PFMA in terms of late submission of financial statements, non- compliance with SCM processes, expenditure management, consequence management and internal control deficiencies.

The NAMC incurred total irregular, fruitless, wasteful and unauthorised (IFWU) expenditure of R30.2 million that the NAMC incurred was flagged for attention.
Although it was far less than the previous year’s total IFWU expenditure of R125.7 million, there was major concern with lack of investigations as the AGSA could not find appropriate audit evidence that disciplinary steps were taken against officials who had incurred the irregular, fruitless, wasteful and unauthorised expenditure as required by the PFMA.
Additionally, as it has been the case in 2019/20, most of the NAMC’s irregular expenditure worth R25 million was caused by contravention of SCM legislation in respect of the National Red Meat Development Programme (NRMDP).

The AGSA further drew attention to a Preliminary Report that was issued on 01 February 2021 on suspected fraud, corruption and conflict of interest on the procurement and contract management relating to the Agriculture and Agroprocessing Master Plan (AAMP).
By 31 August 2021, the Council/Board has initiated a process to implement the recommendations contained in the Report, on which the Committee should request updates.

Targets Achieved: For the fifth consecutive year, the NAMC has achieved all its planned annual performance targets.

However, it was noted that most of the NAMC’s targets were reports.
This may pose a challenge in terms of assessing whether the NAMC has actually achieved what it sets out to do under each Programme, bearing in mind that it also gets commissioned by the Department in coordinating and implementing certain projects e.g.

the NRMDP.
the NRMDP.

Some of the NAMC’s highlighted performance achievements are publications of Agripreneur Magazine; Food Basket Price Monthly, Input Cost Monitors and a South African Food Cost Review; development of a baseline on the Smallholder Market Access Tracker (SMAT) for raisins; reports on Agricultural Industry Trusts and coordinating the development of the Agriculture and Agroprocessing Master Plan (AAMP), on which an investigation has been instituted.
The appointment of a new Chief Financial Officer (CFO) and the new Board (in May 2021) were welcomed.

30 38 6.1.4 Perishable Products Export Control Board (PPECB) The PPECB is a national public entity that is listed under Schedule 3A of the PFMA.

Unlike the ARC and NAMC, the PPECB does not receive a Parliamentary Grant but generates its own revenue through fees and levies charged for inspections done on perishable products that are due for export, issuance of export certificates and laboratory services.
For the 2020/21 financial year, the PPECB’s total generated revenue was R487.6 million, a commendable 12% increase from the previous year’s R431.5 million.

The expenditure for the year under review was R464.2 million and the PPECB realised a surplus of R23.4 million, which is a significant improvement in its financial status as it ended 2019/20 with a deficit of R4.7 million, which has since been recovered during 2020/21.
The surplus of R23.4 million was attributed to the income of R4.7 million, reduction in operational costs (travelling and training activities) as a result of Covid- 19 restrictions, increase in volumes of exports and an increase in levies.

The PPECB received a clean audit opinion from the independent auditors, SizweNtsalubaGobodo (SNG) Grant Thornton Inc. which took over since the AGSA opted out of auditing the PPECB from 2018/19.
The entity also incurred no irregular, fruitless and wasteful expenditure during 2020/21.

The PPECB is the only entity of the former Department that has maintained clean audit outcomes for more than 13 successive years, an excellent achievement that was praised by the Committee in light of the audit challenges within the Department and other entities.
Targets achieved: The PPECB significantly improved its performance during the 2020/21 financial year despite the challenges associated with Covid-19 restrictions, which had an impact on its business operations.

The entity achieved 12 out of 14 (86%) planned targets for the year, a significant improvement from the prior year’s 71%.
It achieved 100% achievement in both the Corporate and Operational Services Programmes, which was an indication of good governance; and also exceeded some of the achieved targets by varied margins across all Programmes.

The two targets that were not achieved were the number of analysed samples under the Food Safety Services Programme and number of smallholder farmers trained under Transformation and Development Services Programme.
The underperformance was attributed to Covid-19, climate conditions and emerging competitors in the case of analysis of samples; and Covid-19 restrictions and provinces not concluding Memorandums of Agreement, Service Level Agreements and SCM processes for training of smallholder farmers.
31 39 Key performance highlights included the export of 3.2 million pallets of perishable products despite Covid-19 challenges, which was 12.5% more than in 2019/20; significant increases in volumes of fruit exports as well as maize, 56% of which was to African countries; a 2% increase in Export Certificates issued and capturing of 190 million cartons on Project TITAN 2.0 (ICT- based), which was launched in October 2019.

The PPECB’s performance was also commended.


6.1.5 South African Veterinary Council (SAVC) The SAVC is a statutory professional body that was established in terms of the Veterinary and Para-Veterinary Professions Act, (Act No.

19 of 1982) to regulate the veterinary and para- veterinary professions in South Africa.
Its core functions amongst others, are to:      Regulate the practising of the veterinary and para-veterinary professions and the registration of persons practising such professions; Determine minimum standards of tuition and training required for degrees, diplomas and certificates entitling the holders thereof to be registered to practise the veterinary professions and para-veterinary professions; Exercise effective control over the professional conduct of persons practising the veterinary professions and para-veterinary professions; Determine the standards of professional conduct of persons practising the veterinary professions and para-veterinary professions; and Encourage and promote efficiency in and responsibility concerning the practice of the veterinary professions and para-veterinary professions.
The organisation’s income mainly comes from membership fees from veterinarians (Vets) and other para-veterinary (Para-Vets) professionals that are registered with SAVC as well as other income from interest received, authorisation fees, facility inspections, student registrations and maintenance fees.

During 2020/21, it realised a total income of R17.7 million (68 per cent from Vets, 17 per cent from Para-Vets and 15 per cent from other income).
The entity expenditure for the year under review was R15.87 million (89.7 per cent) and it remained with a surplus of R1.83 million.

At the end of the 2020/21 financial year, SAVC had 6 455 registered veterinary 32 40 (Vets) and para-veterinary (Para-vets) professionals as well as 800 persons authorised to perform veterinary and para-veterinary professional services.

SAVC received a clean audit opinion from the independent auditors, Acton and McIntosh.
SAVC also achieved all its planned targets for the 2020/21 financial year.

In addition to looking after the interests of veterinary and para-veterinary professionals, one of its key programmes is the mentorship programme for compulsory community service (CCS) veterinary graduates.

It is implementing the mentorship programme jointly with the South African Veterinary Association (SAVA) with funding from the Health Workers Sector Education Training Authority (HWSETA).
By the end of 2020, 27 mentors have been trained with much interest from both mentors and mentees.

SAVC further highlighted the standing challenge with the Threatened or Protected Species (TOPS) Permit System of the Department of Forestry, Fisheries and Environment (DFFE) that requires Vets to apply for a permit every time they have to work on TOPS.
However, it reported that some progress has been made as amended Regulations were tabled for consideration by the National Council of Provinces during February 2020.

6.2 Land Reform Entities 6.2.1 Commission on Restitution of Land Rights The Commission on Restitution of Land Rights (CRLR) exists to provide equitable redress to victims of racially-based land dispossession in line with the provisions of the Restitution of Land Rights Act, 1994 (Act No.22 of 1994).
Since the establishment of the CRLR, there has always been concerns about slow pace of settlement of the land claims lodged by 31st December 1998.

A need for acceleration of the pace has recently been made more pronounced due to, in addition to a pressure to meet claimants land needs and social justice, the increasing number of backlog settlements, the new order land claim and the Court order to settle pre-1998 land claims prior to processing new order land claims.
Further, restitution has become the only programme that results in freehold property ownership.

Other programmes provides land under the terms of a lease agreement with the state.

In response to the critique, the CRLR initiated a project commonly known as Kuyasa in order to improve business processes and systems that could potentially reduce the backlog of 33 41 settlements, develop financial and settlement models and determine an appropriate organisational form of an autonomous Commission.
In addition, it was meant to develop an organisational structure design to support the redesigned process based on the new operating model.

To date, the CRLR has developed, and submitted for further processing by the Minister, a business case that details the proposed design and cost implications.
In addition, an interim Commission structure towards autonomy was approved and backlog reduction strategy has been developed with plans to settle all outstanding claims within the next five years’ subject to the availability of funding.

Part of the strategy seeks to ensure that all outstanding land claims are research by 2023.

With regards to the contribution of the State Land Release project, 120 properties measuring 24 703.69316 ha were transferred under the restitution programme.
However, the Committee noted that 181 state land properties were transferred for restitution in 2019/20, which means that fewer properties were transferred in 2020/21.

The CRLR explained that fewer state properties were transferred because of Covid-19 related restrictions.

For example, due to lock down, municipalities had longer turnaround times for issuing clearance rate certificates, and restrictions on travel meant that surveying of land could not proceed as planned.
The CRLR could not convene community meetings to establish legal entities and to sign settlement agreements.

Whilst the Commission exceeded the targets for settlement and finalisation of land claims, the targets have been decreasing over time.

The original target to settled 454 claims in 2020/21 was revised down to 244.

The original target to finalise 479 claims in 2020/21 was also revised down to 294.
The Committee was concerned about the pace and the extent to which all outstanding 7849 pre-1998 land claims would be settled over the next five years.

6.2.2 The Office of the Valuer-General The Committee welcomed the report that the Inter-Ministerial Advisory Panel on Land Reform (MAP) has started the process of reviewing the Property Valuation Act, Act No.17 of 2014 (PVA) to confirm the role, mandate and valuation methods of the OVG.
With regard to performance information, the OVG achieved five (5) out of nine (9) planned targets for the 2020/21 financial year, representing a performance rate of 54 per cent.

The 34 42 Committee was concerned that the targets on valuations were not achieved, yet this area is its core mandate.

However, a sub programme for 100 per cent completion of valuation submitted by clients was at 93 per cent success rate.

With regard to backlog valuations, it achieved 68 per cent instead of 100 per cent target.
The OVG also took 53 working days to issue valuation certificate instead of 50.

The Committee, having noted that the OVG had in the past taken 117 working days, commended the work being done to improve service delivery in this regard.
The Committee identified three key areas that required attention; namely, building capacity by clarifying the legal and policy instruments; finalisation of the organogram and filling key strategic positions; and development of clear guidelines and protocols for private sector partners to carryout valuations With regard to financial report, the OVG received a budget allocation of R100 million in the year under review.

Its annual expenditure was R44.9 million (44.9%) and recorded balance R55.1 million.
Although 44.9 per cent expenditure is not commendable, the Committee noted that its performance was improving when compared to a 28 per cent expenditure in 2019/20.

Therefore, this performance was a step in the right direction.

Unfortunately, the funds would have to returned to the fiscus because public entities are not allowed to accumulate surplus unless a permission to retain the funds is granted by the National Treasury.
The key concerns, which also led to under expenditure, were the delay in the finalising the OVG organogram resulted in delays in procurement of service relating to operational requirement of the entity.

The AGSA issue an unqualified opinion with findings in respect of the OVG.

This can be considered a regression when compared to the clean audit it received in 2019/20.
The problems that require attention were the following: financial statements were not submitted for auditing within two months after the end of the financial year as required by PFMA, instead they were submitted on 1 June 2021 and financial statements containing material misstatements.

The OVG did not incur irregular expenditure, unauthorised expenditure, fruitless and wasteful expenditure in the year under review.
6.2.3 KwaZulu-Natal Ingonyama Trust Board (ITB) The ITB is established in terms of the KwaZulu-Natal Ingonyama Trust Act (1997) to manage the affairs of the Ingonyama Trust and Trust land.

The ITB receives grant funding from the 35 43 Department while the Trust derives its budget from revenue collected from its trading and investment activities.

The ITB operates under two programmes, namely, Administration as well as Land and Tenure Management.
Programme 1 (Administration) provides administrative support to the Board in order to execute its mandate.

The programme achieved 1 out of 4 targets planned.

Poor performance was linked to the lockdown restrictions due to Covid-19.

The ITB could not connect with stakeholders to sign relationship agreements, to capacitate and support Traditional Councils and to engage on existing draft policies.
Programme 2 (Land and Tenure Management) provides property management, land tenure administration and valuation services to the Board.

The programme achieved one out of the two targets.

It exceeded the target about the number of land tenure rights to be approved by 1 998 as it approved 3 198 land tenure rights instead of the targeted 1 200 of land tenure rights.
The ITB receives grant funding from the Department whereas the Ingonyama Trust derives its budget from revenue collected from trading and investment activities, i.e.

mainly from leases, contractual royalties and compensation from servitudes.

The transfer payment of the ITB was R22.2 million.

Because of the budget deficit, the Trust allocated R24.1 million from the Trust to the ITB, which exceeds the required 10% of the total revenue (i.e.
R4.9 million) to be used towards the operational costs of the Board in terms of the Act’s regulations.

The total of R46.3 million covered the operational costs of the ITB.

The ITB spent R44.9 million of the total income of R46.3 million.

Report of the Auditor-General of South Africa (AGSA) The ITB received an unqualified audit opinion with findings from the Auditor-General of South Africa (AGSA).
Given the ITB’s track record, the audit outcome is a welcome improvement when compared to the qualified opinion it has been receiving in the past three consecutive years.

Some issues that remain are:   The completeness of Ingonyama Trust Board’s irregular expenditure must be addressed.
AGSA could not establish evidence of consequence management 36 44  No sufficient appropriate audit evidence that disciplinary steps were taken against officials who had incurred irregular expenditure as required by section 51(1)(e)(iii) of the PFMA.

 Investigations into irregular expenditure were not performed.

The tabled annual report of the ITB did not contain financial statements for the Ingonyama Trust.
The explanation given was that it submitted the report to the AGSA late and there was ongoing work with the AGSA to audit the report.

Given the interlinkage between the work of the ITB and the Trust, the Committee could not assess the effectiveness of the ITB without view of the financial performance of the Trust.

It therefore resolved to note the report of the ITB and requested that the ITB table a full report that include the financial statements of the Ingonyama Trust.
It is then that the Committee will consider the report and possibly, make further recommendations if necessary.

Discussion of the matter by the Committee raised a number of issues which can be summarised as follows:  The Committee, unanimously, expressed its disquiet about non-submission of the annual financial statements of the Trust.

It resolved to note the report and request the Minister to ensure that a comprehensive report should be tabled.
 For a longest time, there has been difficulties with the Ingonyama Trust’s accounting before the Portfolio Committee and not submitting documents as requested by the Committee.

  The Ingonyama Trust must be seen as a model for strengthening tenure in communal areas; however, evidence before the Committee is to the contrary.
Given the challenges experienced with accountability of the Ingonyama Trust as observed over the last three years, the Committee seeks to explore legislative review that might result in the repeal of the Ingonyama Trust Act or substantial amendments to strengthen the rights of holders.

If the model is such a successful case, which so far the existing evidence is to the contrary, why is it that it is not replicated across the Country.
 The Committee resolved to seek legal advice on the various options available for the Committee to address the standing matters of the ITB and the Ingonyama Trust.

37 45 6.2.4 Trading Accounts (Land reform) (a) Agricultural Land Holding Account (ALHA) Agriculture Land Holding Account (ALHA) is responsible for the acquisition of strategically located land for agriculture productivity under the Proactive Land Acquisition Strategy (PLAS).
Whilst ALHA has a track record of spending 100 per cent of its transfers from the Department, for the period under review the transfers had decreased significantly from R1.68 billion in 2019/20 to R448.04 million in 2020/21.

The decrease impacted negatively on the amount of hectares to be acquired.

With regard to revenue, it recorded a decrease of R2.4 million when compared to the estimated budget, yet the expenditure increased by R41.53 million.
Therefore, its performance for 2021 resulted in a deficit of R669.09 million.

For a third consecutive year, ALHA received a qualified opinion from the AGSA for 2020/21 because of inadequate processes to assess and account for grants paid to farmers through the Land Development Support Programme (LDSP) and used for the Recapitalisation and Development grant.
Further, no effective and appropriate steps were taken to prevent irregular expenditure of R13.87 million incurred in land development support projects.

The Committee also noted that ALHA had no adequate monitoring and oversight to ensure compliance with legislation, to prevent irregular expenditure from being incurred and to ensure that payments are made within 30 days from the date of receipt of invoice.
Further, the failure of management to exercise effective oversight over financial reporting, compliance and related controls was a major concern, amongst other issues.

(b) Deeds Registries Trading Account (DRTA) The DRTA is responsible for the registration of deeds and maintains public registers of land.

It’s main source of funding is fees charged on the registration of deeds and the sale of deeds information.

It recorded an increase of revenue from non-transactions by R99.
97 million considered against the final budget.

Its budgeted grants of R358 million for operational costs was reduced to R138 million, resulting in a difference of R220 million.

However, R208 million was reclassified as a conditional grant for implementation of e-DRS over the next two to three years.

Of this amount, R12 million has been allocated for departmental activities that deeds are required to pay for.
The Committee welcomed its surplus of R93.35 million compared to the 38 46 previous financial year where it recorded a deficit of R80.9 million.

The e-DRS project, which is critical for improving service delivery in the Deeds Registration Office by transitioning from a manual lodgement to an electronic system of deeds registration, has seemingly been delayed.

Further, the DRTA received an Unqualified opinion from the AGSA.

7.
7.

COMMITTEE FINDINGS AND OBSERVATIONS 7.1 Department of Agriculture, Land Reform and Rural Development 7.1.1 Underspending by the Department, which in the year under review resulted in the surrender of R1.3 billion to the National Treasury’s Revenue Fund.

Of particular concern is the prevalence of underspending on compensation of employees when there are capacity challenges in some of the Department’s key programmes.
7.1.2 Lack of consequence management for employee transgressions both in terms of performance and revenue management.

The Department incurred historic (both former DAFF and DRDLR) irregular expenditure of R203.8 million and fruitless and wasteful expenditure of R44.5 million, which were largely due to non-compliance with SCM procedures.

There has been no reported consequence for officials responsible for such expenditure.
7.1.3 Delays in the development and finalisation of the merged Department’s fit-for-purpose structure for the merged Department, which has also been compounded by the vacant position of the Accounting Officer, affected accountability for both financial and service delivery performance as the protracted merger and Covid-19 restrictions have been cited as reasons for non-achievement of some of the targets across Programmes.
7.1.4 The appointment of the Accounting Officer who will resume duties on 01 December 2021 was welcomed and there is an expectation that the appointment will improve accountability, address non-compliance and ensure implementation of consequence management.
7.1.5 Inadequate internal control structures to prevent and detect fraud and effectively address incidences of fraud identified in the Department; as well as weak in-year 39 47 monitoring and reporting in respect of progress on planned performance targets, which becomes even more important for concurrent functions.
7.1.6 Lack of urgency and poor response to the plight of destitute subsistence and distressed smallholder farmers as illustrated by challenges and transgressions in the implementation of the Covid-19 Relief Disaster Agricultural Support Fund that were raised on AGSA’s Special Reports and the delayed implementation of the PESI.

7.1.7 Misalignment between budget utilisation and service delivery performance as 92.4% of the budget was utilised but only 59% of planned performance targets were achieved.
7.1.8 Delays in the development and finalisation of important legislation and policies, with some meant to be processed and finalised in the year under review, namely, the Marketing of Agricultural Products Amendment (MAPA) Bill and the National Policy on Comprehensive Producer Development Support (NPCPDS); as well as the longstanding Communal Land Tenure Policy and the Communal Land Tenure Bill.
7.1.9 Increasing budget cuts and downward revision of targets both because of limited available resources hampers efforts to accelerate the redistribution of land.

7.1.10 Despite an increasing pressure to redistribute land to the poor, the redistribution and state land release project has not released much land as anticipated.

A large number of released land was a confirmation of land already occupied by farmers or communities.
When government attempts to reallocate such land, it gives rise to community conflicts.

7.1.11 Reports on the redistribution of land foregrounds land or ha redistributed and less about the beneficiaries and land use.

It thus becomes difficult to assess whether the State was receiving value for money from a range interventions and socio-economic benefits for land reform beneficiaries.
7.1.12 Despite promises to table the Communal Land Tenure Policy and Bill, Redistribution Bill, to date it remains unclear by when these will be tabled in Parliament.

These Bills are vitally important and strategic in order to ensure that Parliament is not constantly accused for a breach of Section 25(6).
40 48 7.1.13 The delays in the implementation of the e-DRS continues to hamper the Deeds Office to function optimally using the available technology that makes easier to lodge registrations electronically.

Such initiative would have make a huge difference during the Covid-19 lock down when Deeds Offices were closed for public access.

Faster transitioning electronic lodgement could potentially improve the systems of registration and turnaround times.
7.2 Observations on Department Entities 7.2.1 Agricultural Research Council (ARC) (a) There has been some improvement in addressing some of the previous audit findings including implementation of consequence management and ensuring the entity did not incur fruitless and wasteful expenditure during the 2020/21 financial year.
(b) Despite the improvement on previous findings, the Audit Action Plan did not adequately address root causes of previously raised audit findings and there is a major concern with internal control deficiencies that manifested in the successive qualified audit opinions on property, plant and equipment; and also non-prevention of irregular expenditure worth R2.5 million.
(c) Appreciation of the improvement in the entity’s financial viability as well as improvement in performance but concern with overall revenue management and the non- achievement of targets relating to the FMD Facility and vaccine production.

(d) Concern with vacancies at executive management level and in critical positions, which are central to the entity’s stability and optimal performance.
7.2.2 Onderstepoort Biological Products (OBP) (a) The stagnant audit outcomes with material findings, most of which were repeat findings needs attention.

However, application of consequence management and investigations on previous transgressions were welcome.

(b) Serious internal control deficiencies in respect of revenue management, which were previously highlighted by the AGSA as non-compliance with the PFMA and SCM procedures continue.
41 49 (c) With the reported inadequate internal controls, the significant increase in the combined irregular, fruitless and wasteful expenditure of R13.9 million that was incurred during the financial year due to non-compliance with SCM processes could not be prevented and needs attention.

(d) Dissatisfaction with poor performance of the OBP on planned targets.
However, the increase in revenue from vaccine sales and the improvement in production efficiencies were commended in light of the continuing and delays in the refurbishment of the GMP vaccine manufacturing facility.

(e) Lack of progress in the completion of the GMP Facility remains a concern as the Facility is quite central to the sustainability of product development, in ensuring the OBP’s business excellence, improved competitiveness and subsequently, its financial sustainability.
(f) The need to finalise investigations against the suspended CEO and prioritisation of the appointment of the HR Manager as instability at senior management impacts the entity’s performance.

(g) Appreciation for the Department’s intervention to ensure that Provinces procure vaccines and other relevant products from OBP.
7.2.3 National Agricultural Marketing Council (a) There was no improvement in the NAMC’s audit outcomes as repeat audit findings were highlighted in respect of non-compliance with PFMA, expenditure management and SCM procedures due to internal control deficiencies.
(b) The combined irregular, fruitless, wasteful and unauthorised expenditure of R30.2 million remains a major concern particularly as R25 million of the amount was caused by contravention of SCM procedures in the National Red Meat Development Programme (NRMDP), which was a similar case in the previous year.

(c) There is a need for the NAMC to link actual service deliverables to planned targets when reporting as most of its performance targets, which were all achieved, are reports.
(d) The appointments of the new Board and the CFO were appreciated as the appointments are expected to lead to an improvement in the entity’s future audit outcomes.

7.2.4 Perishable Products Export Control Board (PPECB) 42 50 (a) The PPECB’s track record of maintaining clean audits for more than a decade without fail was acknowledged including the good performance of 86% on planned targets despite the challenges associated with Covid-19.
Additionally, the entity was also congratulated for good governance as it also did not incur any irregular, fruitless sand wasteful expenditure during the year under review.

The PPECB and its Board were subsequently applauded for their excellence.
7.2.5 Commission on Restitution of Land Rights (CRLR) (a) The delay of finalisation of the autonomy of the CRLR is impacting the implementation of strategies put in place to fast-track settlement of land claims and ridding the CRLR’s implementation of programmes it was not set up for; for example, support of CPAs and development support.

(b) of state and public land could assist to resolve outstanding land claims on large tracks of land under forestry, mining and military control.
(c) Court order to refer all matters that the CRLR cannot finalise will potentially put pressure on the Land Claims Court due to limited number of Judges available to hear the matters.

(d) A majority of outstanding land claims involve large tracts of land, some claimed by communities.

The Committee will require capacity to conduct credible research that will meet the 2023 deadline.

Such reports must be able to stand scrutiny at the Land Claims Court.
7.2.6 Office of the Valuer-General (OVG) (a) Increasing the pace of redistribution, speedy delivery of land that meets land needs of a large number of people may require a shift to district/area-based rather than piece-meal approaches redistribution.

Further, review of policy and legislative instruments, and bureaucratic red-tape affecting finalisation of settlement agreements and property valuations by the OVG must be resolved.

8.
COMMITTEE RECOMMENDATIONS The Committee makes the following recommendations to the National Assembly for the attention of the Minister of Agriculture, Land Reform and Rural Development: 43 51 The Department of Agriculture, Land Reform and Rural Development 8.1 Fast track the finalisation of the fit-for-purpose organisational structure of the Department to strengthen the Planning, Monitoring and Evaluation functions as weaknesses in these functions contributed significantly to unsatisfactory performance, delays in the verification of performance information and repeat audit findings on usefulness and reliability of performance information.
8.2 Prioritise the filling of vacancies at senior management service (SMS) level particularly DDGs and other critical positions to prevent instability and unsatisfactory performance in the Department.

8.3 Ensure that the signing of performance contracts and assessments by SMS employees in particular are done timeously on an annual basis as required to improve performance and accountability in the Department.

Additionally, where transgressions occur, consequence management should be applied.
8.4 Ensure that the Accounting Officer addresses repeat audit findings and reports regularly on the activities of the Intergovernmental Working Committees that are led by the Department’s DDGs to strengthen intergovernmental relations and integrated planning within the Department and between the Department and Provinces.
8.5 Ensure that the Department engages with the Internal Audit Unit and the Chairperson of the Audit Committee in reviewing the Department’s Audit Improvement Action Plan and report to Parliament on a quarterly basis on the implementation of actions to address specific audit findings including investigations and action on the reported and other identified irregular, fruitless and wasteful expenditure.
8.6 Submit to Parliament a detailed report on the implementation of PESI including a complete breakdown on the utilisation of the allocated funds and the M&E Plan for the implementation of the Initiative.

44 52 8.7 Continuously review the Department’s international trade agreements and protocols; and submit a report to Parliament on the status of these agreements and protocols including benefits to the country, implementation challenges and contentious issues.
8.8 Explore mechanisms to ensure that the Department speeds up the redistribution of land, including review of policies and development of legislation such as the Land Reform Framework Act which address questions of equitable access and the pro-poor land redistribution instruments.

8.9 Finalise policy review and table the Communal Land Tenure Policy and Communal Land Tenure Act in order to ensure compliance with Section 25(6) of the Constitution.
8.10 Fast track the implementation of e-DRS implementation in order to ensure transformation of deeds registration in South Africa.

Further, ensure allocation of resources to the project.
The Department’s Public Entities 8.11 Engage with the Boards and management of entities, namely, ARC, OBP and NAMC to ensure that assistance of the respective Internal Audit functions and Audit Committees is sought to strengthen the inadequate internal controls; and in reviewing and effectively implementing their Audit Improvement Action Plans.
The Plans should include consequence management to ensure that the proposed corrective measures are effective and responsive to root causes of audit findings particularly on irregular, fruitless and wasteful expenditure due to poor supply chain management processes.
8.12 Ensure that all entities, with the exception of the PPECB and SAVC, report to Parliament every quarter on the implementation of the Audit Improvement Action Plans including investigations and actions on reported and identified irregular, fruitless and wasteful expenditure.

8.13 Ensure that the Board of the ARC fast tracks the appointment of the CEO and prioritise other vacant SMS level positions.
45 53 8.14 Ensure that the Board of the OBP fast tracks and report on the finalisation of the investigations against the suspended CEO and also prioritise the appointment of the HR Manager as management instability negatively impacts the entity’s performance.
8.15 Ensure that the Board of the NAMC fast tracks the implementation of the recommendations of the report on suspected fraud, corruption and conflict of interest on the procurement and contract management relating to the Agriculture and Agroprocessing Master Plan (AAMP).

8.16 Ensure that the autonomy of the CRLR is realised within the timeframes set out in the business case developed for the project.

Further ensure that the research strategy finalises all outstanding research.
8.17 Ensure that the OVG prioritise the filling of vacancies at senior management service (SMS) level particularly the Valuer-General and the Chief Operations Officer (COO) as well as other critical positions to prevent instability and unsatisfactory performance.

8.18 Ensure that the ITB tables a comprehensive annual report including the audited annual financial statements of the Ingonyama Trust for consideration by the Portfolio Committee.
8.19 Submit a report on the interventions made by the Inter-Ministerial Task Team appointed to look at functioning of the Ingonyama Trust Board in response to the recommendations made by the Presidential Panel on Land Reform.

The report must also include the Minister’s account of steps she has taken to improve accountability of the ITB and the Ingonyama Trust.
Unless otherwise indicated, responses to the above recommendations should be submitted to the National Assembly not later than 3 months after the adoption of this report by the National Assembly.

Report to be considered.

46 54 2.

The Budgetary Review and Recommendations Report (BRRR) of the Portfolio Committee on Health, dated 24 November 2021 Contents 1.

INTRODUCTION ................................................................................................................. 2 1.1.
Purpose of the report ........................................................................................................ 3 1.2.

Process ............................................................................................................................. 3 1.3.

Report of the Financial and Fiscal Commission .............................................................. 4 1.4.

Report of the Auditor General of South Africa ................................................................ 5 2.
STRATEGIC OVERVIEW .................................................................................................. 6 2.1.

Policy Priorities ................................................................................................................ 6 2.1.1.

Department of Health Five Year Strategic Goals (2020/21 – 2024/25) ....................... 6 2.1.2.

State of the Nation Address (SONA) – 2020 ................................................................. 7 3.
NATIONAL TREASURY REPONSE TO THE 2019/20 BRR RECOMMENDATIONS 8 4.

PERFOMANCE OF THE DEPARTMENT (2020/21) ...................................................... 8 4.1.

Financial Performance ................................................................................................... 9 4.2.

Non-Financial (Service Delivery) Performance .......................................................... 12 4.2.1.
Programme Performance ........................................................................................... 13 4.2.2.

Human Resources ....................................................................................................... 18 5.

PERFOMANCE OF ENTITIES (2020/21) ....................................................................... 18 5.1.

Council for Medical Schemes (CMS) ............................................................................ 18 5.2.
Compensation Commissioner for Occupational Diseases (CCOD) ............................... 25 5.3.

South African Health Products Regulatory Authority (SAHPRA) ................................ 27 5.4.

South African Medical Research Council (SAMRC) .................................................... 31 1 55 5.5.

National Health Laboratory Services (NHLS) ............................................................... 36 5.6.
Office of Health Standards Compliance (OHSC) .......................................................... 42 5.7.

Office of the Health Ombud (OHO) .............................................................................. 45 6.

COMMITTEE OBSERVATIONS AND FINDINGS ...................................................... 47 7.

COMMITTEE RECOMMENDATIONS ......................................................................... 51 8.
CONCLUSION .................................................................................................................... 54 The Budgetary Review and Recommendations Report (BRRR) of the Portfolio Committee on Health, dated 24 November 2021 The Portfolio Committee on Health (“the Committee”), having assessed the performance of the National Department of Health (“the Department”) and Entities against their mandate and allocated resources, reports as follows: 1.
INTRODUCTION The Money Bills Procedures and Related Matters Amendment Act (No.

9 of 2009) sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national Department.

The Portfolio Committee compiles a Budgetary Review and Recommendation Report (BRRR) which is a performance assessment of how the public health sector has used allocated resources.
Based on the assessment, recommendations are made to inform effective, efficient and economic use of allocated resources.
The BRRR takes into account the following: • Medium-term estimates of expenditure; • Sector strategic priorities and measurable objectives; • Prevailing strategic plans and annual performance plans of the Department; • Prevailing strategic plans and annual performance plans of Entities; 2 56 • Expenditure reports relating to the Department published by National Treasury in terms of Section 32 of the Public Finance Management Act (PFMA) (No.1 of 1999); • Financial statements and annual reports of the Department; • Financial statements and annual reports of the Entities; • Reports of the Committee on Public Accounts relating to the Department; and • Any other information requested by or presented to Parliament.
1.1.

Purpose of the report This report summarises a presentation received from the Department and Entities focusing on the 2020/21 Annual Reports and financial statements.

The report details the deliberations, observations and recommendations made by the Committee relating to the Department and Entities’ financial and non-financial performance for the 2020/21 financial year.

1.2.
Process In assessing the performance of the Department of Health and Entities for the financial year 2020/21, the Committee reviewed and analysed the following reports and/or documents: • 2020 Estimates of National Expenditure; • Strategic Plan of the Department of Health and Entities (2020/25); • Annual Performance Plan of the Department of Health and Entities (2020/21); • Annual Report of the Department of Health (2020/21); • Annual Report of the Council for Medical Schemes (2020/21); • Annual Progress Report of the Compensation Commissioner for Occupational Diseases (2020/21); • Annual Report of the South African Health Products Regulatory Authority (2020/21); • Annual Report of the South African Medical Research Council (2020/21); • Annual Report of the National Health Laboratory Services (2020/21); • Annual Report of the Office of Health Standards Compliance (2020/21); 3 57 • Annual Report of the Office of the Health Ombud (2020/21); • Report of the Financial and Fiscal Commission (2020/21); and • Report of the Auditor-General South Africa (2020/21).
On 10 November 2021, the Committee engaged the Auditor-General of South Africa (AGSA) on the audit outcomes of the Department and Entities, and the Financial and Fiscal Commission (FFC) on its analysis of the annual reports of the health sector.

On 10 to 19 November 2021, the Committee engaged the Department and Entities on their 2020/21 annual reports and financial statements.

1.3.
1.3.

Report of the Financial and Fiscal Commission The Financial and Fiscal Commission (FFC) reported that actual spending on COVID-19 special appropriation amounts to R612 million for the 2020/21 financial year.

The actual expenditure showed an over-expenditure in transfers and subsidies for the COVID-19 vaccine roll-out at 5.5% of the total departmental budget.

The FFC noted that movement of funds between programmes and sub-programmes needs to be made clearer to ensure function-funding alignment.
The FFC noted with concern that government had spent at least R351 million on corruption investigations, as this money could have been diverted to spending on pressing matters of social and economic development.
The FFC made the following recommendations in relation to the Department and the health sector: • The Department should adhere to procurement and budget processes to ensure effective management of contracts and related payments, and refrain from unnecessarily outsourcing services when more cost-effective intergovernmental services can be used.

• There is a need to prioritise the development of an integrated national information system of patient, doctor registries and vaccination, with real-time data.
4 58 o To inform health care financing and provisioning decisions using the demand- based costing methodology; o To reduce administration for South Africans in relation to the vaccination programme; and o It will keep the public informed on the recent developments of the vaccination roll-out.

• There is a need to re-examine the prescribed Primary Health Care package based on the needs of the people.
• There should be an examination and eradication of inefficiencies such as wastage, corruption and leakages as a result of the two-tiered health care system.

• The Ministers of Health and Finance must ensure that an enabling policy and legislative framework, aligned to the spheres of government is put in place.

This is in relation to setting norms and standards that are enforced with proper oversight by the established technical committees.

1.4.
1.4.

Report of the Auditor General of South Africa The Auditor General of South Africa (AG) reported that the overall outcomes in the health portfolio have improved slightly in comparison to the previous year, with one audit (Office of Health Standards Compliance (OHSC)) moving from unqualified with findings to unqualified with no findings.

The Department received an unqualified audit opinion, with material findings.
The South African Medical Research Council (SAMRC) maintained its audit outcome of unqualified with no findings on performance reporting and compliance with legislation.

The control environment at South African Health Products Regulatory Authority (SAHPRA) improved significantly, resulting in no findings on performance reporting.

The only matter remaining relates to the prior year misstatements not corrected that had a possible impact on the current year amounts.
The audit of the Compensation Commission for Occupational Diseases (CCOD) is outstanding, as a result of legacy issues.

The AG reported that the 2019/20 audit is being finalised.

Thereafter, the 2020/21 5 59 catch-up audit will commence.

The entity’s management team plans to submit the 2021/22 financial statements within the legislated date.

The Council for Medical Schemes (CMS), SAMRC and OHSC submitted financial statements that are free from material misstatements.
However, the quality of financial statements of the NDOH and the National Health Laboratory Services (NHLS) require urgent attention.

According to the AG, these auditees received an unqualified opinion due to adjustments made on material misstatements.

Controls relating to financial management and reporting needs to be strengthened to ensure an improved outcome.
The AG expressed concern about the increase in non-compliance with supply chain management prescripts and regulations regarding contract management.

This resulted in an increase in irregular expenditure in the portfolio.

The AG stated that the root cause of the non-compliance is a lack of consequence management to ensure that action is taken against officials who do not comply with legislation and regulations.

2.

STRATEGIC OVERVIEW 2.1.


Policy Priorities The 2020/21 – 2024/25 Strategic Plan of the Department responds to the priorities highlighted in the MTSF 2019-2024.
It is aimed at eliminating avoidable and preventable deaths (survive); promoting wellness, and preventing and managing illness (thrive); and transforming health systems, the patient experience of care, and mitigating social factors determining ill health (thrive), in line with the National Development Plan Goals (2030) and the United Nation’s objectives of the Sustainable Development Goals (SDGs) for health.

2.1.1.
Department of Health Five Year Strategic Goals (2020/21 – 2024/25) The strategic outcome-orientated goals for the Department for next five years are as follows: 6 60 Goal 1: Increase Life Expectancy, improve Health and Prevent Disease • • Improve health outcomes by responding to the quadruple burden of disease of South Africa Inter sectoral collaboration to address social determinants of health Goal 2: Achieve Universal Health Coverage (UHC) by implementing National Health Insurance (NHI) Policy • Progressively achieve UHC through NHI Goal 3: Quality Improvement in the Provision of care • Improve quality and safety of care • Provide leadership and enhance governance in the health sector for improved quality of care • Improve community engagement and reorient the system towards Primary Health Care through Community based health Programmes to promote health Improve equity, training and enhance management of Human Resources for Health Improving availability to medical products, and equipment • • • Robust and effective health information systems to automate business processes and improve evidence-based decision making Goal 4: Build Health Infrastructure for effective service delivery • Execute the infrastructure plan to ensure adequate, appropriately distributed and well- maintained health facilities to ensure adequate, appropriately distributed and well maintained health facilities 2.1.2.
State of the Nation Address (SONA) – 2020 The February 2020 State of the Nation Address (SONA) highlighted the following main health- related issues: • The President recognised health as being a fundamental condition for growth and development.

(This insight is even important given the effect of the COVID-19 on societies and economies around the world, including South Africa.)

7 61 • South Africa continues to be impacted by HIV and AIDS.

A total of 6.8 million South Africans were tested.


Approximately 5 million people have been initiated on antiretroviral treatment, and as a consequence, the HIV viral load of 4.2 million people is undetectable.

• The President noted the enthusiastic support for NHI during the public hearings, and preparations for its implementation are being put in place, following the conclusion of the parliamentary process.
• In preparation for NHI, more than 44 million people at over 3 000 clinics have been registered on the electronic Health Patient Registration System, and are now implementing this system in hospitals.

3.
3.

NATIONAL TREASURY REPONSE TO THE 2019/20 BRR RECOMMENDATIONS The National Treasury responded to the Committee’s recommendations for 2019/20 as follows: Recommendation: National and provincial treasuries should assist provincial departments in dealing with accruals and medico-legal claims which are depleting departments’ budgets.
In its response the National Treasury indicated that over the 2021 MTEF period, it has earmarked R73.1 million in the National Department of Health’s budget to continue funding medico-legal experts and financial management support of provinces.

It was further noted that, where medico- legal claims are merited, experts will assist provinces through mediation or litigation, including assistance with actuarial evaluation of the claim.
In addition, support is provided to strengthen general financial management in provinces, including verifying invoices and training officials in areas such as procurement.

4.

PERFOMANCE OF THE DEPARTMENT (2020/21) This section provides an overview of the financial and non-financial (service delivery) performance of the Department for the 2020/21 financial year.

8 62 4.1.

Financial Performance For 2020/21, the Department received a budget of R58.1 billion, of which it spent R57.5 billion.
This constitutes expenditure of 99.1%, down from 99.2% expenditure rate in the previous financial year.

The Department underspent its allocated budget by R548.3 million or 0.9% of the final appropriation.

The underspending increased from R422.4 million in the previous financial year.

It should be noted that under-expenditure in the Department has increased steadily from R101.2 million (0.3%) in 2016/17, R220.9 million (0.5%) in 2017/18 and nearly R1 billion (R913.8 million or 1.9%) in 2018/19.
The largest amount of under-expenditure representing 50.2% of the Department’s total under- expenditure was under Programme 3: Communicable and Non-Communicable Disease which underspent by R275.7 million or 1% of the programme budget.

This is up from R137.6 million or 0.6% of the programme budget in the previous financial year.
Programme 2: National Health Insurance was the second largest contributor to under-expenditure (32.6 % of the total under-expenditure) as it underspent by R178.6 million or 14.9% (previous financial year R159.7 million or 7.9%) of the programme’s budget.

Programme 1: Administration underspent by R112.6 million which is 17% of the programme’s available budget, and 20.5% of the total under-expenditure.
In terms of economic classification, expenditure on Compensation of Employees (COE) amounted to R927.3 million (99.9%) of the COE budget allocation of R928.4 million.

With regard to COE, the Department notes that there were vacancies that were not filled, as well as backlogs regarding performance management payments.

The Department also noted that there is a backlog of pay progression for two financial years i.e.

2019/20 and 2020/21.


This is of great concern, as lack of pay progression, coupled with the grievances staff had with the unsafe Civitas building may combine to affect morale in the Department.

The Committee should consider following up on this issue closely.

9 63 Goods and Services expenditure amounted to R2 billion or 98% of the budget allocation of R2.5 billion.
The reasons for under-expenditure include the lockdown restrictions, as well as the issue of Civitas building, which was closed in September 2020 and rental was withheld.

An amount of R831.1 million or 95.1% was spent on capital payments from the budget of R874.3 million.

No reasons for the under-expenditure are provided.

An amount totalling R612.3 million was funded directly from the National Revenue Fund (NRF).
This consisted of R462.3 million for COVID-19 vaccine under Goods and Services, and R150.0 million towards research of the effectiveness of the COVID-19 vaccine.

Approval was given for a total of R40.1 million to be veered after the Adjustments budget by the Director-General (DG).

This included R36.1 million within Goods and Services, and R4 million within Purchase of capital assets.

No funds were rolled over.

R49.7 million was noted as unauthorised expenditure on programmes 4 and 6.
Note 11 of the financial statements provides no further details on this other than the Department is awaiting authorisation for this amount.
Table 1: Appropriation statement 2020/21 Programme R’000 2020/21 2019/20 Final Actual Over/under Final Actual Over/under Appropriation Expenditure expenditure appropriation expenditure expenditure 1 Administration 663 552 550 965 112 587 588 743 542 426 46 317 2 National 1 200 556 1 021 911 178 645 1 999 789 1 840 046 159 743 Health Insurance 3 Communicable 28 161 797 27 886 124 275 673 22 851 142 22 713 512 137 630 & Non- 10 64 Communicable Diseases 4 Primary Health 277 085 314 971 (37 886) 219 651 216 857 2 794 Care 5 Hospital Systems 21 219 600 21 188 507 31 094 20 432 634 20 413 709 18 925 6 Health System 6 530 006 6 541 847 (11 841) 5 103 204 5 046 221 56 983 Governance and Human Resources TOTAL 58 052 596 57 504 325 548 271 51 195 163 50 772 771 422 392 Cumulative fruitless and wasteful expenditure: Amounts to R2.1 million, with R39 000 related to the year under review.
Fruitless and wasteful expenditure increased from zero in 2015/16, to R402 000 in 2016/17, R1.1 million in 2017/18, and R2.1 million in 2018/19.

Previous years’ fruitless and wasteful expenditure was largely constituted by penalties and interest due to a late payment to suppliers, and South African Revenue Service (SARS) penalties.

The Department also investigated fruitless and wasteful expenditure from no-shows and penalties from motor vehicle licences, which were renewed late in previous years.
Irregular expenditure: The Department was subject to an investigation of the Special Investigations Unit (SIU) regarding the appointment of Digital Vibes - R132.0 million is reported as irregular expenditure for the year under review.

R166.1 million irregular expenditure relates to prior years, with R216 000 being condoned.

Irregular expenditure thus totals R298.0 million.


Irregular expenditure for 2020/21 related to, amongst other things: • R23.0 million (R8.0 million and R15.0 million) to services rendered outside the approved period; • R14.7 million - Appointment does (not) meet the definition of emergency as per National Treasury instruction note 3 of 2016/17.

11 65 • R18.7 million (R18.2 million and R0.5 million) tax compliance at the time of the award could not be verified.
Conditional Grants: Total conditional grants spent was at 97.4% or R51.2 billion against the total adjusted budget of R52.6 billion, below the acceptable norm of 100%.

All grants underspent, rollovers were requested.

The major contributor to underspending in all the conditional grants is the Health Facility Revitalisation Grant.

This was due to poor performance of contractors and the impact of the COVID-19 pandemic.

The HIV/AIDS component overspent due to reprioritization of funds to COVID-19 component.
4.2.

Non-Financial (Service Delivery) Performance The Department’s performance appears to have increased slightly compared to the previous years.

During the financial year under review, the Department achieved 21 out of 43 targets (48.9%) compared to the 2019/20 financial year where the Department achieved 33 out of 71 targets it had set itself (46.5%).
Table 2 below provides an overview of the number of targets that the Department achieved against the targets that it set for itself in the Annual Performance Plan (APP) 2020/21.

In terms of programme performance, Programme 5: Hospital Systems appears to be the best performing programme, achieved 100% of its set targets, followed by Programme 2: National Health Insurance that achieved 66.7%.
Table 2: Programme Performance Overview Programme Number Achieved Not Targets Budget Targets Budget 2020/21 2019/20 of targets fully Achieved Spent Achieved Spent achieved 2020/21 % 2019/20 % 2020/21 2019/20 1.

Administration 6 2 4 33.3% 83.1% 33.3% 92.1% 12 66 4 2 6 4 3 2.

National 6 Health Insurance 3.

Communicable 6 & Non- Communicable Diseases 4.

Primary Health 12 4 9 Care 5.

Hospital Systems 6.

Health System Governance and Human Resources 2 66.7% 85.1% 66.7% 92.0% 4 33.3% 99.1%.
56.3% 99.4% 6 0 6 50% 113.7% 43.8% 98.7% 100% 99.9% 25% 99.9% 33.3% 100.2% 37.5% 98.9% Total 43 21 22 48.9% 99.1% 46.5% 99.2% 4.2.1.

Programme Performance This section provides an analysis of the performance of the Department under each of its six main programmes.

The analysis focuses particularly on the overarching targets and achievements under each programme and highlights some of the challenges that prevented the Department from achieving these target.

4.2.1.1.
4.2.1.1.

Programme 1: Administration The programme achieved only two (33.3%) of the six planned targets for 2020/21.

It should be noted that the number of targets set in the APP for this programme had fluctuated from eleven (11) in 2015/16, seven (7) in 2017/18, only two (2) in 2018/19, and three (3) in 2019/20.

13 67 Four targets relate to the Financial Management sub-programme, specifically audit outcomes, and two targets relate to medico-legal claims.
There does not appear to be targets reflecting the Communications sub-programmes.

The notable targets under the programme during the period under review include the following: • The Department met its target of achieving an unqualified audit opinion.

The AG noted that controls relating to financial management and reporting need to be strengthened to ensure an improved outcome.

• The Eastern Cape and North West Provincial Departments of Health received qualified audit opinions.
• As was the case in the previous financial year, only three Provincial Departments of Health implemented claim management system to manage medico-legal claims.

This was attributed to disruptions due to COVID-19.

• Also a repeated finding from the previous financial year, the Department had a vacancy rate of 15% due to budget cuts on COE effected by the National Treasury.
The Department aims to embark on a robust reprioritisation process to ensure that critical posts are filled, and posts that cannot be accommodated are abolished.

This programme was allocated R663.6 million and spent R551.0 million (83.1%) down from 92.1% expenditure rate in the previous year.

Under-expenditure totalled R112.6 million.

4.2.1.2.
4.2.1.2.

Programme 2: National Health Insurance (NHI) In the year under review, out of the six (6) planned targets, the Department achieved four (4) or 66.7%, which is the same as the previous financial year.

Most of the targets were not reached as the NHI legislation is in the legislative processes of Parliament.

The Department reports that during 2020/21, the overall medicine availability was above 85%, and ARV availability was 95%, despite global supply chain disruption due to COVID-19.
The Department exceeded the target set for the number of health facilities reporting stock availability 14 68 at the National Surveillance Centre.

It noted that not all facilities in the Western Cape are able to report on the National Surveillance Centre.

The Department also exceeded the number of patients registered for receiving medicines via the Centralised Chronic Medicine Dispensing and Distribution (CCMDD) System, with 4.3 million patients registered against a target of 3.5 million.
According to the Department, more patients were enrolled on CCMDD due to COVID-19.

Spending declined in the programme compared to the previous financial year in both actual amount spent and in percentage terms.

This is of concern as the budget was reduced from R2 billion in 2019/20 to R1.2 billion in 2020/21, and only R1.1 billion or 85.1% was spent.

This represents an under-expenditure of R178.7 million.

4.2.1.3.
4.2.1.3.

Programme 3: Communicable & Non-Communicable Diseases In programme 3, the Department fully achieved only two (2) out of six (6) targets or 33.3%.

This is down from its achievement of nine (9) out of 16 targets or 56.4% in the previous financial year.

The number of targets in this programme has been reduced significantly over the past few years, from 16 in 2019/20 to six (6) in 2020/21.
The Department achieved targets related to communication: The Side by Side campaign radio shows exceeded its target with 404 radio shows (target: 396 radio shows); and 213 health promotion messages were marketed via social media (target: 100).

The Department did not achieve the targets related to developing 9 Provincial Implementation Strategic Plans for Non-Communicable Diseases (NCDs).

It was also unable to achieve the target of 800 (actual: 652) PHC facilities.
There are no targets related to HIV and AIDS, tuberculosis (TB) and mental health.

15 69 This programme was allocated R28.2 billion (up from R22.9 billion) and spent R27.9 billion, which is a 99.1% expenditure rate.

Under-expenditure amounted to R275.7 million.

The vast majority, 99.6%, of this programme’s budget (R27.6 billion) was allocated to the HIV and AIDS sub-programme.
Only R12.4 million is allocated to Women’s Maternal and Reproductive Health, and R30.9 million is allocated to Health Promotion and Nutrition.

4.2.1.4.

Programme 4: Primary Health Care This programme consists District Health Services, Emergency Services and Trauma, and Environmental and Port Health services.

In terms of performance, six (6) out of the 12 targets or 50% were fully achieved.
An important intervention to involve the community in oversight of healthcare facilities is the empowerment of clinic committees and hospital boards.

To this end, the Department reports that a monitoring system for measuring the effectiveness of clinic committees has been developed and that training material for public hospital boards has also been developed.

The Department did not reach the target of 2 100 PHC facilities qualifying as Ideal Clinics (n=1 444).
Nine provinces were assessed for compliance with Emergency Medical Services Regulations.

Nine points of entry were self-assessed as compliant with International Health Regulations (IHR) 2005 core capacity requirements.

This is a critical indicator as evidenced by the COVID-19 pandemic, and needs to be monitored closely.

The budget allocation for this programme increased from R219.7 million in 2019/20 to R277.1 million in 2020/21, with expenditure of R315.0 million (113.7%) i.e.
an over-expenditure of R37.9 million.

16 70 4.2.1.5.

Programme 5: Hospital Systems The number of targets for this programme has decreased from eight (8) in 2019/20 to four (4) in the financial year under review.

All four (4) targets (100%) were achieved, compared to the previous financial year when only two (2) of the eight (8) targets (25%) were achieved.
Targets achieved include: • 55 PHC facilities constructed or revitalised (target: 54); • 25 Hospitals constructed or revitalised (target: 24); • 150 public health Facilities (Clinics, Hospitals, nursing colleges, EMS base stations) maintained, repaired and/or refurbished (target: 150); and • Draft guideline on the Organisational structures for tertiary and regional hospitals developed.

This programme has spent nearly 100% (R21.189 billion (99.9%)) of its R21.220 billion allocated funds.
This is in keeping with the previous financial years’ spending pattern.

4.2.1.6.

Programme 6: Hospital System Governance and Human Resources The aim of this programme is to develop policies for planning, managing and training of the health sector human resources and the planning, monitoring, evaluation and research sector.

It also provides oversight to all health public entities and statutory health professional councils in South Africa.

It provides forensic laboratory services.


The number of targets has decreased from 16 in 2019/20 to nine (9) in the year under review.

Only three (3) of the nine (9) targets (33.3%) were achieved.

Those targets achieved include: • Four reports produced to monitor the health worker training programme on the use of personal protective equipment (PPE); • Automated Track and Trace system for COVID-19 implemented; and • National Health Research priorities identified.
17 71 Targets not achieved include: • Implantation Guideline on the use of Health Patient Registration Number (HPRN) not published; • Only 76 (target: 500) PHC facilities where the Health Patient Registration System (HPRS) and the National Health Laboratory Service (NHLS) Track care systems are implemented • Community service policy was not reviewed.

This programme has spent 100.2% of its appropriated funds, amounting to R6.5 billion.

4.2.2.
4.2.2.

Human Resources The Department reports that it had a total of 1 394 permanent posts filled, out of 1 943 approved posts which represents a vacancy rate of 15.2% (compared to previous year’s vacancy rate of 14.9%).

In the Senior Management Services (SMS), the highest vacancy rates were experienced at level 14 (34.4%, n= 11), level 15 (16.7%, n=2) and level 13 (15.5%, n= 13).

5.
5.

PERFOMANCE OF ENTITIES (2020/21) This section provides an overview of the financial performance of Entities for the 2020/21 financial year.

5.1.

Council for Medical Schemes (CMS) The Council for Medical Schemes (CMS) is established in terms of the Medical Schemes Act (MSA) (No.

131 of 1998), as a public entity mandated to regulate the medical schemes industry in South Africa.
The main objective is to safeguard the interests of members, thereby, promoting fair 18 72 and equitable access to private health financing.

CMS’s mission is to regulate the medical schemes industry in a fair and transparent manner.

5.1.1.

Non-Financial Performance In terms of performance, CMS achieved 48 out of the 53 indicators (90.57%) set.
Some of the performance achievements during the financial year include: • Obtaining an unqualified report by the Auditor-General (AG); • Percentage of information technology (IT) security incidents (breaches) were 0.75% exceeding the target by 4.25%.
• Information and Communications Technology (ICT) systems up-time were maintained at 99%; • 100% of category 2 and 3 clinical opinions provided within the targeted (60 and 90 days respectively) number of working days of receipt of request from the Complaints Adjudication unit.
• Increased research outputs published to inform appropriate national health policy interventions • The following prescribed minimum benefits (PMB) benefit definitions guidelines were published: o COVID-19; o Chronic lymphocytic leukaemia; o Hodgkin’s lymphoma; o T-cell prolymphocytic leukaemia; o Cutaneous T-cell lymphoma; o Multiple Myeloma; o Acute myeloid leukaemia (AML); o Myelodysplastic syndromes (MDS); o Myeloproliferative neoplasms (MPN); and o Chronic myeloid leukaemia (CML).
19 73 • The number of stakeholder awareness activities were more than doubled (target: 25; achieved: 55) when one would reasonably expect this target not to have been reached due to COVID-19 lockdowns.

Table 3: Highlights of some of the CMS Performance Indicators PROGRAMME PLANNED TARGET ACTUAL PERFORMANCE 1.
ADMINISTRATION Obtain an unqualified Unqualified opinion achieved 2020/21 2020/21 opinion issued by the AG Ensure that 95% of Achieved: 95% physical requests for information are responded to within 30 days Minimise staff turnover Not Achieved: 18.3% Staff turnover.

to less than 10% per annum Average turnaround Achieved: 70.8 days.
time of 120 working days to fill vacancies 95% of employee Achieved: 100% performance agreements are signed 95% of employee Achieved: 99.1% performance assessments concluded biannually 20 74 PROGRAMME PLANNED TARGET ACTUAL PERFORMANCE 2020/21 2020/21 Number of written and Achieved: 85% verbal legal opinions provided to internal and external stakeholders, per year- target 85% 2.
STRATEGY The number of benefit Achieved: 10 OFFICE definitions published target: 10 Percentage of category Achieved: 92.75% 1 clinical opinions reviewed provided target 90% 98% of clinical Achieved: 100% enquiries received via e-mail or telephone reviewed within 7 days 3.
ACCREDITATION Percentage of Managed Achieved: 100% Care Organisations (MCOs) applications processed within 3 months, target 100% Percentage of Achieved: 100% applications by administrators and self- administered schemes accredited processed within 3 months, target 100% 21 75 PROGRAMME PLANNED TARGET ACTUAL PERFORMANCE 2020/21 2020/21 4.

RESEARCH AND Number of research Achieved: 12 MONITORING projects finalised, target 12 One non-financial Achieved: one report submitted for inclusion in the Annual Report 5.
STAKEHOLDER 25 stakeholder training Achieved: 55 sessions were conducted, RELATIONS and awareness sessions exceeding set target by 30 conducted Submit CMS annual Achieved report to the Executive Authority by 31 August 6.

COMPLIANCE Number of routine Not achieved: 10 (-5) due to inadequate AND inspections finalised if capacity and COVID-19 lockdown INVESTIGATIONS applicable, target: 15 restrictions.

Percentage of Not achieved: 33% (-47%) due to COVID- commissioned 19 lockdowns which restricted movement.
inspections finalised, target: 80% 7.

BENEFITS 80% interim rule Achieved: 96.83% MANAGEMENT amendments are processed within 14 days of receipt 90% of annual rule Achieved: 100% amendments were amendments are processed processed before 31 December each year 22 76 PROGRAMME PLANNED TARGET ACTUAL PERFORMANCE 2020/21 2020/21 8.

FINANCIAL Recommendations in Not achieved as zero business plans were SUPERVISION respect of Regulation received in the period under review.
29 for 100% of business plans received Three (3) quarterly Achieved financial return reports published Financial sections Achieved prepared for the annual report 9.
COMPLAINTS 70% of complaints Achieved: 76% (+6%) ADJUDICATION adjudicated within 120 working days 70% of complaints Achieved: 76% (+6%) adjudicated within 90 working days and in accordance with complaints standard operating procedures Medical Schemes Industry: • In 2020, there were 76 medical schemes, consisting of 18 open schemes and 58 restricted schemes, down from 144 schemes in 2000, with 97 restricted schemes and 47 open schemes.
• Membership as a percentage of population declined from 16% in 2000 to 14.78% in 2020.

• Overall, the industry declined by less than 2% between 2019 and 2020.

• Medical scheme membership decreased slightly (by 56 910 beneficiaries) during 2020, to end the year with 8.9 million beneficiaries.

23 77 • Government Employees Medical Scheme (GEMS) contributed to the increase in restricted schemes and registered 71 463 beneficiaries, with 3.8% year-on-year growth.
• Discovery Health Medical Scheme registered a loss of nearly 50 000 beneficiaries (49 770), followed by Fedhealth (13 015) and Bonitas (12 858).

• The impact of COVID-19 meant that elective procedures were delayed, resulting in lower claims compared to 2019.

Complaints Adjudicated: • During the reporting period, the CMS received 1 729 new complaints with 1 725 complaints carried over from the previous financial year, totalling 3 454 complaints.
• Two thousand, four hundred and ninety (2 490) complaints were resolved in 2020/21, (versus 3 006 in 2019/20) with 964 complaints carried over to the next financial year.

• The turnaround time for the provision of clinical opinions used in the adjudication of complaints from members and beneficiaries of schemes was significantly improved upon.

• The backlogs of the last few years were cleared and the quality of opinions were greatly improved.
• Several contentious healthcare technologies were adjudicated upon, while ensuring that member and beneficiary entitlements were protected.

5.1.2.

Financial Performance • CMS received a Government grant to the amount of R6.5 million in 2021, up 1% from the R6.4 million received in 2020.
• During this reporting period, the CMS had a total revenue of R179.1 million derived from revenue from exchange transactions (R172.5 million) such as accreditation fees, levies, registration and sundry income, and non-exchange transactions (R6.5 million Government grant) of goods and services.

• The operating expenses for the reporting period amounted to R38.9 million, which is down nearly 20% (18.4 %) from R47.7 million incurred in the previous financial year.
24 78 • Considering all income received, the entity experienced an operating deficit of R348 000 compared to a R25.2 million deficit in the previous financial year.

• CMS has an accumulated irregular expenditure of R64.1 million.

R59.2 million is carried forward from previous years.

R44.2 million submitted to the National Treasury in December 2018 for condonation was not condoned as insufficient information was provided by the CMS.
At the time of reporting, the CMS contended that it was reviewing the matter.

For 2021, the irregular expenditure amounted to R5.4 million.

R4.7 million is related to the CMS having established a panel of lawyers without going through a bidding process; R506 584 relates to awards without following proper processes; and R139 000 due to expansion of scope of work by more than 15% without prior approval.

5.1.3.
5.1.3.

Audit Report • The CMS obtained an unqualified audit opinion for the financial year under review.

• The AG did not raise any material findings on the usefulness and reliability of the performance information • The AG found that effective and appropriate steps had not been taken to prevent irregular expenditure.

Similar non-compliance was also reported in the prior year.
• The AG further found that management had not adequately monitored compliance with applicable laws and regulations, as well as related internal control as evident by the non- compliance with supply chain management (SCM) prescripts that resulted in irregular expenditure.

• It also found that management had not adequately implemented review controls over performance reporting, as evidenced by material errors identified in the annual performance report and corrected during the audit.

5.2.
5.2.

Compensation Commissioner for Occupational Diseases (CCOD) The CCOD’s statutory functions include: 25 79 • Provision of medical assessments (benefit medical examinations) for eligible current and ex-mineworkers for occupational lung diseases; • Certification of claims by medical panels; • Payment of pensions and claims; and • Collection of revenue (levies on risk shifts in controlled mines and works).

5.2.1.
Non-Financial Performance • Drafting of amendments of ODMWA is currently underway with one consultative workshop held with mining companies and trade unions; • 13 084 (target 12000) – certifications were finalised on the Mineworkers Compensation System; • 4 212 (target 7 000) – benefit payments were made by the CCOD (other than pension payments); • 5 354 (target 7 700) – claims finalised by the CCOD (other than pensioners); • 81.6% (target 50%) of all claims finalised within 90 days of receipt of claim documents; • 65% (target 80%) of controlled mines and works paying levies to the CCOD; • 41 (target 77) – number of controlled mines and works inspected; • Annual reports for 2014/15, 2015/16 and 2016/17 were submitted to Parliament; and • The 2017/18 annual report is being audited by the AG and 2018/19 submitted for auditing.
5.2.2.

Financial Performance The CCOD’s financial statements for 2020/21 have not been audited, however the entity’s spending of voted funds is as follows: • Cost of Employees (COEs) is below the budgeted amount having spent R34.7 million versus a budgeted allocation of R39.3 million.

This indicates a spending of 88% on COE.

• Goods and services overspent by 126%, R19.4 million spent of a budget of R15.4 million.

• Capital expenditure was at 95%, having spent R2.7 million of R2.9 million budget.
26 80 • In total, the CCOD underspent by 1%: R60 million spent of a total budget of R61.6million.

5.3.

South African Health Products Regulatory Authority (SAHPRA) The Medicines and Related Substances Act, (No.

101 of 1965), (as amended by Act 72 of 2008, together with Act 14 of 2015), provides for the establishment of SAHPRA, a Schedule 3A public entity, which functions as a separate juristic entity, outside of the National Department of Health.

SAHPRA came into existence in February 2018.


SAHPRA’s mandate includes monitoring, evaluation, regulation, investigation, inspection, registration and control of medicines, scheduled substances, clinical trials, medical devices and related matters in the public interest.

5.3.1.

Non-Financial Performance During the period under review, SAHPRA achieved 14 out of the 27 indicators (52%) set.
The performance achievements during the 2020/21 financial year are highlighted below: Table 4: Highlights of some of SAHPRA’s Performance Indicators PROGRAMME PLANNED TARGET ACTUAL PERFORMANCE 10.
ADMINISTRATION Obtain an unqualified opinion Not achieved: Qualified audit 2020/21 2020/21 issued by the Auditor-General opinion obtained Total revenue generated (R387 Not Achieved: R268 million million) Total revenue generated from Not Achieved: R102 million fees (R196.7 million) Break-even of expenses and Not Achieved: -R24.7 million revenue 27 81 PROGRAMME PLANNED TARGET ACTUAL PERFORMANCE 2020/21 2020/21 60% of positive ratings for Achieved: 68% effectiveness and efficiency as rated by private and public users of SAHPRA services 50% of positive ratings from Achieved: 68% public perceptions 50% positive responses in all Not Achieved: Obtained less than surveyed dimensions 50% in two surveyed dimensions Implementation of Medicines Achieved: System developed and Regulatory Quality implemented Management System 60% digitisation of SAHPRA Not Achieved: 10% of processes processes digitised 100% of prioritised positions Not Achieved: 80% of prioritised filled positions filled Percentage of positions in Achieved: 71% staff establishment filled (target, 70%) 25% of staff in core business Achieved: 100% trained Baseline sector thought and Achieved: 23 regulatory science pieces disseminated Achieve maturity level 3 (in Not Achieved: The WHO-assisted terms of global best practices) assessment could not take place due to COVID-19 lockdown restrictions 28 82 PROGRAMME PLANNED TARGET ACTUAL PERFORMANCE 11.
HEALTH 40% of applications for Achieved: 53% 2020/21 2020/21 PRODUCT medicine registration in AUTHORISATION backlog cleared 90% of variation applications Achieved: 96% cleared 50% of licences for new Achieved: 74% applications within set timelines 12.
INSPECTORATE 60% of GMP inspections Not Achieved: 86 inspections AND completed with report conducted and 35 (41%) reports REGULATORY submitted to applicant submitted to applicants COMPLIANCE Percentage of health product Achieved: 83% quality complaints investigated and reports produced (target 70%) 13.
MEDICINE Percentage of registrations of Achieved: 100% within 590 days EVALUATION New Chemical Entities AND finalised within set timelines REGISTRATION (target, 60% in 590 days) Percentage of registrations of Not Achieved: 55% within 250 generic medicines finalised days within set timelines (target, 60% in 250 days) Finalise 85% of applications Achieved: 91% for the sale of unregistered Category A (Section 21) medicines within 24 working hours 29 83 PROGRAMME PLANNED TARGET ACTUAL PERFORMANCE 2020/21 2020/21 Finalise 80% of human clinical Achieved: 83% finalised within trial applications within 120 120 days days 70% of reports on health Not Achieved: 43% actioned products safety signals within 20 days actioned within 20 days 14.
MEDICAL 70% of medical device Not Achieved: 56% finalised DEVICE, establishment licence within 90 days DIAGNOSTICS applications finalised within 90 AND RADIATION days CONTROL Develop and implement Not Achieved: Due to delays in medical device registration finalising the submission and framework publication 70% of new application Achieved: 85% issued within 30 licences for ionizing radiation- days emitting devices and radioactive nuclides issued within 30 days 5.3.2.
Financial Performance SAHPRA’s total revenue for 2020/21 was estimated at R267.7 million, with R108.2 million from exchange transactions and R159.4 million from non-exchanged transactions.

SAHPRA’s total expenditure was R292.4 million.

A significant portion of SAHPRA’s assets for the period under review comprised of newly acquired assets.

These amounted to R23.4 million.


The acquisitions include other fixed assets (R645 287), computer equipment (R6.7 million), furniture (R7.6 million), leasehold improvements (R6.7 million) and intangible assets (R1.8 million).

By March 2021, SAHPRA had a net asset position of R20.3 million.

The current assets (totalled 30 84 R165.2 million) include cash and cash equivalents of R150.8 million.
Current liabilities amounted to R176.6 million, also makes provision for R21.9 million deferred income for the backlog reduction project.

5.3.3.

Audit Report • SAHPRA obtained a Qualified Audit Opinion due to significant internal control deficiencies.

• The Auditor-General (AG) noted that SAHPRA did not implement proper record keeping to ensure that complete, relevant and accurate information is accessible and available to support financial reporting.
Controls over monthly processing and reconciliation of transactions were not implemented.

According to the AG, SAHPRA did not review and monitor compliance with applicable legislation.

The Committee should pay close attention to these matters.

• On the usefulness and reliability of the performance information, the AG could not identify any material findings on the reported performance information for Programme 4 - Medicine Evaluation and Registration.
• The AG notes that effective and appropriate steps were not taken to prevent irregular expenditure amounting to R6 268 808.

• On procurement and contract management, some of the goods and services with a value below R500 000 were procured without obtaining the require quotations.

Similar non- compliance was also reported in the prior year.

5.4.

South African Medical Research Council (SAMRC) 31 85 SAMRC is mandated by the SAMRC Act (No.
58 of 1991) (as amended) to improve the health and quality of life of South Africans.

It does this through research, development and technology transfer.

5.4.1.

Non-Financial Performance By the end of March 2021, SAMRC reported the following achievements.
• Commenced wastewater surveillance system for SARS-CoV-2 in four provinces; • Supported the National Health Laboratory Service (NHLS) to develop local reagents and testing kits for PCR testing; • Serves on the Ministerial Advisory Committee on COVID-19, which assists the National Coronavirus Command Council; • Launched new HIV resistance testing software, exatype™, which enables faster, more accurate, and cost-effective testing.
The DNA of the virus uses the Next Generation Sequencing (NGS) technology and results are uploaded to a web-based system; • Provided input during COVID-19 lockdown to various media outlets on possible restrictions for alcohol sales without undermining COVID-19 responses; • Dedicated R7.5 million to support two projects working in a collaborative network seeking to provide national and international support for COVID-19 surveillance led by the KwaZulu-Natal Research Innovation and Sequencing Platform (KRISP) at University of KwaZulu Natal (UKZN) and Hyrax BioSciences; and • Trained Community Health Care workers to undertake door-to-door SARS-CoV-2 education and screening and referral to hospitals or isolation facilities in respect to the national active case finding household survey.
Table 5: Performance on set Objectives 32 86 IMPACT PERFORMANCE FINAL FINAL STATEMENT TARGET 2020/21 PERFORMANCE PERFORMANCE Strengthening of A clean audit opinion on Performance target Performance target 2020/21 2019/20 corporate governance processes towards an unqualified audit the SAMRC from the Clean Audit.

Annual Clean Audit.
Annual Clean Audit.

Annual Auditor-General performance Clean performance Clean Audit - Achieved Audit - Achieved opinion from the Percentage of the Performance target Performance target Auditor General government allocated 20% of the allocation 20% of the SAMRC budget spent on spent on allocation spent on administration administration.

Annual administration.


performance 16% - Annual performance Target Achieved 19% - Target Achieved Number of accepted and published journal Performance target Performance target Promote the articles, 800.

Annual 800.

Annual improvement of book chapters and books performance 1 261, performance 1 187, health and quality of by Target Achieved Target Achieved life (prevention of ill SAMRC affiliated and health, funded improvements in authors.
public health and treatment) in South Number of accepted and Performance target Performance target Africa through published journal articles 200.

Annual 200.

Annual research.

by SAMRC grant-holders performance 281, performance 322, with acknowledgement Target Achieved Target Achieved of the SAMRC 33 87 IMPACT PERFORMANCE FINAL FINAL STATEMENT TARGET 2020/21 PERFORMANCE PERFORMANCE To build an innovation community, Number of new innovation and 2020/21 2019/20 Performance target 4.
New target technology projects Annual performance developing life funded by the SAMRC 29, Target Achieved changing health aimed at developing, solutions for South testing and/ or Africa, Africa and implementing new or beyond improved health solutions Number of innovation Performance target 1.

New target disclosures made by the Annual performance SAMRC intramural 1, Target Achieved research and innovation Number of awards Performance target Performance target To provide research (scholarships, 110.
Annual 110.

Annual support in the form fellowships and grants) performance 144, performance 157, of funding and by the SAMRC for MSc, Target Achieved Target Achieved supervision to the PhD, Postdocs and Early next generation of Career Scientists.

scientists in the broad field of health Number of awards by the Performance target 90.
New target SAMRC to Black South Annual performance African citizens and 86, Target Not permanent resident MSc, Achieved PhD, Postdocs and Early 34 88 IMPACT PERFORMANCE FINAL FINAL STATEMENT TARGET 2020/21 PERFORMANCE PERFORMANCE 2020/21 2019/20 Career Scientists classified as African Number of awards by the Performance target 60.

New target SAMRC to MSc, PhD, Annual performance Postdocs and Early 38, Target Not Career Scientists from Achieved historically disadvantaged institutions (HDIs).
To contribute to Number of local or Performance target 5.

Performance target building public and international policies, Annual performance 7.

Annual policy-maker reports and guidelines 44, Target Achieved performance 44, understanding of that reference SAMRC Target Achieved health, drivers of ill- research heath, and practice, Performance target 10.
New target interventions and Number of conferences, Annual performance technologies that can seminars and continuing 26, Target Achieved prevent ill health development points and strengthen workshops supported by health services and the SAMRC encouraging use of research evidence in policymaker, practitioner and public decision- making.

35 89 5.4.2.

Financial Performance Revenue generated in 2020/21 increased to R1.169 billion from R1,092 the previous year.
In 2020/21, the entity’s operating surplus increased significantly from R12.2 million the previous year, to R57.3 million.

While investment income declined during 2020/21, the end of the financial year resulted in an overall surplus of R79.2 million.

In terms of the financial status of the entity, accumulated surplus stood on R420.7 million up from R341.5 million the previous year.

Also noted is the increase in total assets from R674.8 million the preceding year to R922 million in 2020/21.
Total liabilities increased from R333.3 million in the prior year to R501.3 million by end of March 2021.

Despite the increase in total liabilities as shown, an in impressive net assets demonstrates sound financial position.

5.4.3.

Audit Report • The Auditor General gave the entity a clean audit.

This is a continuation of its clean audit performance that has been achieved in preceding years.
• The AG did not identify any material findings or non-compliance with the specific matters in applicable legislation; • The AG did not identify any significant deficiencies with respect to internal controls; • On fair value, the AG states that the entity did not reclassify any financial assets from cost or amortised cost to fair value, or from fair value to cost or amortised cost during the current or prior period.
• The AG further indicates that the cash at the Reserve Bank includes funds for the Botha Trust; Bruhns Trust; Melville Douglas Trust; Q&S Abdool Karim Trust; FJ Kleynhans Trust; MF Ramashala Trust and Motor vehicle reserve fund 5.5.

National Health Laboratory Services (NHLS) 36 90 The NHLS is established through the National Health Laboratory Service Act, 2000 (Act No.
37 of 2000), which mandates it to provide cost-effective and efficient health laboratory services to all public healthcare and any private healthcare providers that requests such services.

IT has 288 laboratories across the nine provinces of South Africa, serving approximately 80% of the South African population.

By the end of March 2021, NHLS reported marvellous milestones such as follows.
• Generated a surplus of R54.3 million; • Grew a turnover from R9.3 billion to R10.7 billion; • • Increased assets from a restated R7.0 billion to R7.3 billion; Increased revenue for COVID-19 testing amounted to R1.9 billion; • 19 laboratories received initial accreditation in the year under review; • Published 673 articles in peer-reviewed journals against a target of 620; • Obtained an unqualified audit report for the reporting period ending March 2021; • 52 laboratories maintained or improved their accreditation from the previous year; • 91 South African National Accreditation System (SANAS)- accredited laboratories; • Deployed a total of 67 mobile laboratory units nationwide to respond to COVID-19.
5.5.1.

Non-Financial Performance During the reporting period, the NHLS achieved 80% of its set targets, which depicts a slight decrease from the 83% reported in the previous financial year.

Despite the pressures of COVID-19, the NHLS performed relatively well.

5.5.1.1.

Programme 1: Laboratory Service Programme 1 achieved a performance success rate of 83.3% for 2020/21.
Some of the reasons attributed to the failure to achieve all targets include the shortage of consumables during the first and second quarters due to consumables having to be shared between the HIV PCR and COVID-19 testing.

This resulted in a knock-on effect on its turnaround times.

Another reason 37 91 is due to the effects of COVID-19, which led to the tender for digital pathology being delayed.
This delay affected the limitation of bandwidth which ought to have been increased to support multi-protocol label switching (MPLS).

The programme’s budget expenditure reached 96.8% due to the decision to fund all COVID-19 expenses from the corporate budget, while only critical vacancies were filled 5.5.1.2.

Programme 2: Academic Affairs, Research and Quality Assurance Programme 2 achieved 72.2% of its targets in 2020/21.
Failure to achieve the missed targets is attributed to COVID-19 restrictions, which led to suspension of all ISO 9001 certification assessments by the service provider.

Internal audits were also affected by adherence to the social distancing regulation.

Another reason is an increased absenteeism emanating from COVID-19, which impacted laboratories for accreditation.

By end of March 2021, expenditure stood at 59.7%.

5.5.1.3.
5.5.1.3.

Programme 3: Surveillance of Communicable Diseases Programme 3 achieved 100% of its performance targets.

It over-achieved its targets for the number of articles published in peer-reviewed journals due to the increased COVID-19 research outputs.

By end of March 2021, the expenditure reached 95.1%.

5.5.1.4.

Programme 4: Occupational and Environmental Health and Safety The overall performance success rate for Programme 4 was 75.0%.
The NHLS failed to meet the number of occupational, environmental health and safety assessments completed as planned.

It attributes the failure to the number of workplaces having closed down during the COVID-19 lockdown.

It asserts that assessments were put on hold for longer than anticipated as some workplaces that remained operational could not accommodate the programme’s staff due to compliance with social distancing and adhering to travel restrictions.
The programme had an allocation of R156.5 million, while its total expenditure was R135.8 million.

By the close of books in March 2021, the expenditure was 86.8%.

38 92 5.5.1.5.

Programme 5: Administration Of the five main programmes, Programme 5 is the worst performing; having achieved a 70.6% success rate.

During the previous financial year, its success rate was lower, i.e.

62.5%.

The budget was R1.3 billion.


The total expenditure was R3.8 billion which resulted in over- expenditure of R2.5 billion.

The expenditure rate was 285.7%, meaning this programme overspent 185.7% on its allocated budget.

The over-expenditure is attributed to COVID-19 purchases, which was centralised within the corporate office.
The availability of goods was limited during the peak of the pandemic, hence the entity deemed it appropriate to centralise procurement to manage the equitable distribution to all regions.

Critical to note is that the budget for 2020/21 was approved pre-COVID pandemic, hence the aforementioned expenditure was not budgeted for, but considered imperative.

5.5.2.

Financial Performance The 2020/21 financial statements of NHLS come at the back of the restated financial statement for 2019/20.
Restatement is defined as a revision of one or more of a company's previous financial statements to correct an error.

The decision to warrant a restatement is dependent on accountants due to the past error considered to be “material” enough to permit a restatement.
The NHLS financial statements provides details for itself as an entity of the Department of Health (referred to as the controlling entity) and a consolidated one (which include both the NHLS and its subsidiary, the South African Vaccine Produces (SAVP)).

The consolidated statements are referred to as the economic entity (see statement of financial position and statement of financial performance.
For purposes of this analyses, the focus will be on the statements for the economic entity since it provides a more holistic picture of the performance of both the NHLS and its subsidiary, the SAVP, joint 39 93 The NHLS grew its revenue from R9.3 billion in 2019/20 to R10.7 billion in 2020/21.

The bulk of this revenue is derived from services rendered (R9.8 billion), followed by grants and subsidies from government (R855.6 million).
Included in the government subsidy is R251 million from the Solidarity Fund to assist the NHLS with COVID-testing.

Despite the growth in revenue, the cost of sales increased with 30.3% from the previous year.

The increase in cost of sales is mainly due to a sharp increase in spending on direct materials, which could possibly be related to the COVID-19 pandemic.

Expenditure on direct materials increased from R3.6 billion in 2019/20, to R6.6 billion in 2020/21.
The NHLS resultantly experienced an operating deficit of R105.2 million.

In contrast, the previous financial year resulted in an operating surplus of R765.9 million.

The R105.2 million operating deficit was offset by R163.7 million interest received from debtors, resulting in a R54.3 million surplus for the year.

In 2019/20, the NHLS ended the financial year with a surplus of R1.1 billion.

NHLS’ current assets remained almost the same at around R5.9 billion in 2020/21 similar to 2019/20 financial year.
The total assets increased from R7 billion in 2019/20 to R7.2 billion in 2020/21.

Total liabilities also increased from R2.6 billion in the preceding financial year to R2.8 billion in 2020/21.

Net assets increased from R4.4 billion previously to R4.5 billion in 2020/21.

The NHLS’ current assets include, amongst others, its inventories (valued at R1.1 billion), funds from exchange transactions (services rendered) (R1.4 billion), and non-exchange transactions (R414.5 million), etc.
However, it should be noted that exchange transactions include debt owed to the NHLS, which was initially set at R5.1 billion, but that an amount of R3.8 billion was impaired.

(In essence, debt is impaired when it is unlikely to recover the full amount.)

This resulted in exchange transactions totalling R1.4 billion in 2020/21 (minus impairment).

The table below provides details of debt owed and impairments to the NHLS.
40 94 The NHLS reports that an external audit was conducted into the amount disputed by the KZN Department of Health (DoH).

This amount was in relation to the audit concluded that an amount of R1.8 billion is owed by KZN DoH to the entity.

However, the parties involved have neither agreed nor acknowledged the outcome of the audit.

5.5.3.

Audit Report • The audit firm, Nexia SAB&T provided audit services to NHLS for the second year in a row.
During this reporting period (2020/21), the NHLS received an Unqualified Audit Opinion.

Issues Emanating from the Audit Report • Restatement of the financial statement for 2019/20 was done to correct the errors committed in that reporting period.

• The entity continued to have weaknesses in its internal control mechanisms, which have led to a finding on non-compliance with legislation.
• Material misstatements of revenue, non-current assets, current assets, liabilities and disclosure items identified by the auditors in the submitted financial statement were corrected, resulting in the financial statements receiving an unqualified audit opinion.

• There were no appropriate steps taken to prevent irregular expenditure amounting to R778.6 million as required by section 51(1)(b)(ii) of the PFMA.
• Irregular expenditure was incurred due to non-compliance with laws and regulations governing procurement and contract management • Financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework, as required by section 55(1) (b) of the PFMA.
• Some of the quotations were awarded to suppliers whose tax matters had not been declared by the South African Revenue Services to be in order as required by Treasury Regulation 16A9.1(d) 41 95 • In some instances, the prices of Personal Protective Equipment items charged by suppliers were not in accordance with Annexure A of the National Treasury Instruction note 8 of 2020/21 as required by paragraph 3.1.1 of the same instruction note.

5.6.
5.6.

Office of Health Standards Compliance (OHSC) The National Health Amendment Act (No.

12 of 2013) establishes OHSC as a Schedule 3A Public Entity governed by the Board and the Chief Executive Officer (CEO).

Section 78 of the same Act directs the OHSC to promote and protect the health and safety of the users of health services in South Africa.

5.6.1.

Non-Financial Performance During the reporting period, the OHSC tracked 21 output indicators.
Fourteen (67%) of the indicators were either achieved or partially achieved.

Seven (33%) indicators were not achieved.

Performance per programme is detailed below.

5.6.1.1.

Programme 1: Administration The OHSC achieved a 42.6% success rate for targets listed in its annual report.

The primary reasons for deviation from set targets were linked to the COVID-19 pandemic as the entity faced a challenge with filling vacancies, as well as hosting training and stakeholder engagement events.
However, where targets were fully in the entity’s control, such as achieving an unqualified audit opinion and a ICT service availability, it met and exceeded targets.

This programme had an approved allocation of R60.6 million, but it overspent with an amount of R3.7 million.

During the previous financial year, Programme also managed to overspent.

Overspending for this programme has become a historical feature, and raises issues of adequate funding.
Over-expenditure for 2020/21 is attributed to prior year commitments on maintenance and support of ICT infrastructure, which was funded, with the National Treasury’s approval, from its surplus 42 96 5.6.1.2.

Programme 2: Compliance Inspectorate, Certification and Enforcement Historically, Programme 2 has also experienced challenges in meeting all its targets.

In 2018/19, only 3 out of 5 targets were achieved, while in 2019/20 only 2 out of 7 were achieved.
The 2020/21 financial year saw the programme’s success rate decline to 25%, primarily due to its inability to commence with the compliance inspections in the private sector.

Given the under-performance on its annual targets, the programme also underspent on its allocation.

The initially approved budget was slightly above R48 million, and the total expenditure by end of March 2021 was R40.9 million.

The under expenditure was R7 million.

5.6.1.3.


Programme 3: Complaints Management and Ombud Programme 3, is one of the most important programmes in the entity because it serves both OHSC and Office of Health Ombuds (OHO).

The outputs of this programme have been hailed beyond South Africa.

However, during the reporting period, the performance success rate was only 40%.

One of the reasons for under-performance is the historic backlog due to a deficit in human capital.
Another contributing factor to the non-attainment of all set targets is COVID-19 and applicable restrictions.

At the beginning of the reporting period, the budget for this programme was R19.7 million and the expenditure by end of the reporting period was fair at R18.8 million.

The balance was just shy of R1 million.

5.6.1.4.

Programme 4: Health Standards Design, Analysis and Support None of the targets in this programme were fully achieved.
Reasons attributed to failing to achieve the set targets is the cancellation of face-to-face stakeholder workshops due to COVID-19.

The recurring challenge for this programme is human deficit due to the inability to attract relevant skills for the funded posts.

In the beginning of the reporting financial year, this Programme was allocated R12.7, with an expenditure of R9.1 million.
The R3.5 million under-expenditure is attributed to the stoppage of conventional stakeholder meetings and non-filling of vacant posts 43 97 5.6.1.5.

Programme 5: Certification and Enforcement Programme 5 shows that of the three planned targets, only one (1) was achieved, with the remaining two being missed and partially achieved.

The performance success rate is thus 33.3%.


This is an important programme that focuses on the certification of compliant health establishments and enforces action against non-compliant of health establishments.

Failure to achieve all targets is apportioned to the impact of COVID-19.

The programme had a budget of R2.6 million and its annual expenditure by March 2021 was R2.2 million.

5.6.2.
5.6.2.

Financial Performance Compared to 2019/20, wherein the entity generated R142.6 million – in 2020/21, the total revenue generated decreased to R139.1 million arising from a downward revision of government allocation due to COVID-19.

Unlike the preceding reporting period, where the entity had a deficit amounting to R10.3 million, in 2020/21, the entity achieved a surplus of R6.1 million.
Importantly, table 7 below depicts the financial position comprising assets, non-current assets, current liabilities and non-current liabilities as at the end of the reporting period.

The OHSC’s revenue is derived from an allocation from National Treasury under the budget vote for the National Department of Health.

It further derives interest on this revenue.

During the reporting period (2020/21), the entity was allocated R143.9 million.
However, due to the pressures exerted on the national fiscus by the COVID-19 pandemic, the allocation was revised downward to R137.6 million with a difference of R6.3m, which equates to 4.4% lower than the initial amount.

5.6.3.

Audit Report • The entity obtained an Unqualified Audit Opinion.
44 98 • The Auditor General identified examined Programme 3: Complaints Management and Ombud and found the material misstatements on the reported performance information of Programme 3: Complaints Management and Ombud.

This has been recurring on this programme.

5.7.


Office of the Health Ombud (OHO) The Office was established due to the complex factors and the deterioration of quality of health care services such as long queues at public health facilities, deficit of human capital for health including continued rise of medical negligence.

This together with the associated legal claims in South Africa particularly between 2005 and 2012 led to the establishment of the Office in 2016.

5.7.1.
5.7.1.

Non-Financial Performance During the reporting period 2020/21, the Complaints Centre and Assessment Unit operated at 76% i.e.

19 of 25 posts of its intended human resources.

Six of the filled posts were funded on a contract basis and contributed significantly in reducing the backlog.

The number of people assisted by this Unit grew steadily over the past five years.

The number of cases received in 2020/21 grew and were accordingly higher than that reported in 2019/20.
Despite the fact that the 2020/21 reporting period coincided with the COVID-19 lockdown, the measures implemented did not hamper the continuity of services.

The implemented intervention included diverting calls to the phones of Call Centre staff and enabling remote access to the online complaints management system.
The Assessment Unit referred eight (8) cases for investigation to the Investigation Unit, of which 63 cases meeting criteria for investigation were retained, and 32 of these were closed through assessment.

The Assessment Unit failed to close 45% of all cases including backlogs due to constraints of human capital.

Only 2.5% of the global number of outstanding complaints were closed.
Other achievement include two abstracts accepted as poster presentations at the 2020 International Society for Quality in Health Care (ISQua) Conference i.e.

: 45 99 • Reflections on compliance with complaints management in the public health sector of South Africa: OHSC inspection findings; and • Life Esidimeni investigation: lessons and implications for the health sector.
Although the Office has reported some challenges over the years, it also registered notable successes, which include amongst others the following: • Being represented at a collaborative meeting with the United Nations Sub-committee on Prevention of Torture (SPT) in November 2020.

This meeting was coordinated by the Human Rights Commission to discuss progress made in South Africa's implementation of the Optional Protocol to the Convention against Torture (OPCAT).
A written response to questions posed by United Nations subcommittee was submitted, focusing on the Health Ombud and plans to integrate the OPCAT preventive mandate into the Office.

• The increased number of cases received and serviced by the Assessment Unit.

In 2020/21 it had a total of 285 open complaints, and managed to resolve 174 of these.

This meant the Unit closed the financial year with 111 open complaints, compared to 265 at the end of 2019/2020.
The Office is housed and shares financial and human resources with the OHSC.

Due to this reason, the financial performance of the Office is contained in the OHSC report.

However, it is worth noting that the Office has reported that the recommendation of the Presidential Health Summit in 2018 of budget increase to R16 million in 2020/21 and to R32 million by 2021/22 has not been effected.
The Office has stated the following impediments that it faces: • The number of backlog cases poses a reputational risk to the Office; • There are complaints that have not been resolved which were logged in 2016 that still awaiting an outcome due to human resources’ constraint; • The Office requires more investigators to deal with voluminous documentary evidence which has to be gathered and carefully analysed; 46 100 • The fundamental and persistent constraint on case resolution is the limited investigative capacity of the Office; • The COVID-19 restrictions on travel and other activities due to the pandemic compounded the caseload and delay in resolving the cases.
6.

COMMITTEE OBSERVATIONS AND FINDINGS The Committee, during its deliberations made the following observations: 6.1.

Department of Health • The Committee noted with concern that provincial departments spend budgets in training nurses and doctors (in particular Cuban-trained doctors), however the same provinces find it difficult to employ and retain these health professionals in the system, despite high vacancy rates.

• Unauthorised expenditure by the department was noted as a concern by the Committee.
• The Committee was concerned that the AG had reported that it was unable to obtain appropriate audit evidence due to the unreliability of performance information.

• The finding by the AG about material misstatements was a concern to the Committee.

• The Committee noted with concern, accruals in provinces and wanted to know what the department was doing to assist provinces in eradicating accruals.
• The Committee expressed concern that investigations into transgressions and irregularities were not initiated promptly to enable consequence management.

• The Committee wanted to know what the position of the Department on the planned removal of low-cost benefit options by the CMS.

• The Committee expressed concerned about the recent increase of possible food poisoning cases in the country.
• The Committee noted with concern that the provincial audit reports were not received, noting that these would assist in providing a holistic picture on the health sector performance.

47 101 6.2.

CMS • The Committee raised its concern about the removal of the low-cost benefit options for low-income market segments, as these were of assistance to people who cannot afford medical aids.
• The Committee wanted to know the reasons for the exclusion of termination of pregnancy and breast reduction in schemes’ benefits.

• The Committee was concerned about irregular expenditure incurred by the entity as reported by the AG and wanted to know what the entity was doing to address this.

• The Committee was concerned about inadequate outreach to educate people on medical aids which makes it difficult for them to choose from the many medical schemes.
• The Committee wanted to know how far was the SIU investigation on maladministration at the CMS which was pronounced in 2019 and whether there were any consequences taken against transgressors.

6.3.

CCOD • The Committee was concerned that there were unclaimed benefits that need to be paid to the beneficiaries.

6.4.

SAHPRA • The Committee was concerned about the entity’s financial challenges and sought clarity on the root causes and whether SAHPRA’s employees had been paid.
• The Committee was concerned about the Regulator’s unsatisfactory audit outcomes and sought further details on its remedial plans.

• The Committee observed that there were deficiencies in internal controls and sought clarity on measures that the Regulator has put in place to address this, specifically in supply chain management and consequence management.
• The Committee noted with concern the AG’s finding regarding the Regulator’s lack of proper record keeping to ensure complete, relevant and accurate information to support financial reporting.

48 102 • The Committee noted the survey conducted by SAHPRA among its staff member, that yielded 50% negative responses.

Clarity was sought about the reasons for the negative responses and whether it was as a result of low staff morale.
• The Committee noted the irregular expenditure of R6 million that SAHPRA has incurred and sought further details on the nature of this irregular expenditure.

• The Committee sought an update about the resolutions of the meetings between SAHPRA and the Health Professions Council of South Africa (HPCSA) in relation to the use of surgical mesh.

Further details were sought on whether SAHPRA had engaged other health entities and bodies across the globe on this issue.
• The Committee noted that SAHPRA requires additional funding allocation to do its job independently and successfully.

• The Committee observed that SAHPRA, as a fairly new entity, has made a number of interventions such as introducing new technology and approving vaccines.

6.5.

SAMRC • The Committee commended the SAMRC for maintaining a clean audit.
• The Committee noted with concern that there were four employees reported to have been injured on duty and sought clarity on the measures the SAMRC has put in place to prevent incidences of injury on duty.

• The Committee wanted to know how many black women were in senior management positions and noted with concern the imbalance in terms of the country’s demographics.

• The Committee observed that although the SAMRC had an increase in total liabilities, there was an increase in assets, of R420 million.
6.6.

NHLS • The Committee commended the NHLS for obtaining an unqualified audit opinion.

• The Committee wanted to know the reasons targets were not achieved and what the contingency measures and risk mitigation strategies would be, to ensure that targets are achieved in future, despite the continuation of COVID-19.

49 103 • The Committee was concerned about the AG’s findings, including the reported irregular expenditure and wanted to know what the entity was doing to address these.
• The Committee observed that the NHLS’s revenue has grown from R9.3 billion to R10.7 billion.

• The Committee was concerned about exchange transactions and the R3.8 billion that was impaired, wanted to know what the way forward was on this matter.

6.7.

OHSC • The Committee commended the OHSC for movement in audit outcomes, from unqualified with findings to unqualified opinion with no findings.
• The Committee was concerned about the OHSC’s budget constraints, restricting the entity from filling positions.

The Committee further noted with concern that only 41% of vacancies were filled and wanted to know what the entity’s plans were to address this challenge, given that the mandate of the OHSC is heavily reliant on human resources.
• The Committee wanted to know how much was set aside for the revised organogram and the rationale for appointing a service provider to assist with the review of the organogram.

The Committee sought clarity on why this was not done internally to save costs.

• The Committee was concerned about the 10% of public health establishments inspected during the period under review and sought further details on plans to increase this to 50%.
• The OHSC reported that it plans to charge fees for inspections and the Committee sought clarity on who would be paying these fees.

• The Committee wanted to know what strategies were in place to ensure that health facilities are compliant under NHI and which facilities has been prioritised to reach compliance standards.
• The Committee wanted to know what the tangible remedial actions or efforts were on facilities that do not comply to norms and standards, beyond issuing recommendations and forewarnings to revoke compliance certificates.

• The Committee has noted overburdened and non-compliant health facilities in rural areas and townships and wanted to know if the OHSC has revoked any compliance certificates.
50 104 • The Committee was concerned that the OHSC could not fully conduct inspections due to COVID-19 restrictions, in light of the numerous complaints received regarding poor conditions in COVID-19 hospitals.

• The Committee was concerned that the entity did not meet all of its targets and wanted to know what would be done differently in future to ensure that all targets are met.
• In relation to the proposed decentralisation, the Committee wanted to know whether a plan had been developed or a cost-benefit analysis been conducted.

6.8.

OHO • The Committee noted the achievements of the Ombud despite the challenges the entity is operating under.

• The Committee expressed major concern that the situation had not changed since the OHO first presented to the Committee in prior years.
• The Committee suggested an urgent meeting with the OHO, the Minister and relevant stakeholder to put some of the issues on the table and find a way forward.

• The Committee sought details on the modalities used for the movement of staff from the OHSC to the OHO and how it was affecting both.

• The Committee asked for progress on the drafting of the Bill aimed to address some of the challenges the entity face.

7.
7.

COMMITTEE RECOMMENDATIONS The Committee recommends that the Minister of Health should consider the following: 7.1.

Department of Health Audit outcomes - • Ensure that all the findings of the Auditor General are addressed and report to the Committee on progress.

51 105 • Provide a detailed report to the Committee on how it is assisting provinces in dealing with accruals.

The detailed report should be presented to the Committee on a quarterly basis.
• Provide systems to assist provincial departments to develop internal controls and instruments to monitor and eliminate irregular, wasteful and fruitless expenditure to reduce inefficiencies.

• Provide a turnaround plan to address the recurring issue related to quality of performance information as reported by the AG.

• The Department and the Executive should develop early warning systems, provide cogent tools, including analytical tools to ensure that consequence management is implemented.
Financial management - • Provide the Committee with a quarterly progress report on consequence management arising from non-compliance with legislation.

• Ensure oversight and monitoring of key areas of internal controls and financial management.

• Assist the health entities whose performance is restricted by budgetary constraints, to ensure their optimal operation.

Improving the quality of health care - • A proper investigation and research should be conducted on the use of surgical mesh.
• Ensure food safety monitoring and inspections, in light of the recent rise in reported food poisoning cases.

Entities 7.2.

CMS • Proper consultation and engagement should be conducted on the removal of low-cost benefit options, especially consultation of those who would be affected.

• The Committee suggested that the CMS recalls the two circulars in relation to low-cost benefit options until public engagements are concluded.

• The entity should ensure that it addresses all the AG’s findings.
52 106 • Strengthen public education on medical schemes benefits.

7.3.

CCOD • The CCOD should put mechanisms in place to track and trace beneficiaries of unpaid funds.

• Ensure that the backlog of annual reports and financial statements is cleared.

7.4.

OHSC • Engage the Minister of Health on the entity’s budgetary constraints, to ensure that it is fully capacitated and it delivers on its mandate of monitoring and enforcing compliance with prescribed norms and standards.
• Present to the Committee a detailed report on remedial actions and strategies to ensure that health facilities are compliant in preparation for NHI.

• Provide the Committee with a list of facilities that has been prioritised to reach compliance standards.

• Provide a detailed report on inspections of COVID-19 hospitals.

• Furnish the Committee with a detailed plan and cost-benefit analysis on the proposed decentralisation of services.

7.5.
7.5.

SAHPRA • The entity should ensure that the payment of staff is addressed as a matter of urgency.

• Present to the Committee a turnaround plan aimed at improving audit outcomes, including improvements on internal controls and reducing irregular expenditure.

• Furnish the Committee with a full report on its investigation and research on the use of surgical mesh.

• Engage the Minister of Health on the entity’s budgetary constraints.

7.6.
7.6.

OHO • In view of the entity’s operational challenges, a formal engagement with the Portfolio Committee, the Minister and relevant stakeholder should be convened.

53 107 7.7.

SAMRC • Ensure that Occupational Health and Safety measures are strengthened to prevent incidences of injury on duty.

8.

CONCLUSION Unless otherwise indicated, the Department of Health should respond to the Committee recommendations in three months from the day when the report is adopted by the House.
The Department and Entities to provide progress reports on all of the recommendations on a quarterly basis.

Report to be considered.

Dr KL Jacobs Chairperson: PC on Health Date: 54 108 3.

Portfolio Committee on International Relations and Cooperation Budgetary Review and Recommendation Report 2020/2021 Chairperson: Hon SOR Mahumapelo MP 109 Table of Contents 1.
Introduction 1.1 The scope of the report 1.2 The Committee mandate 1.3 The purpose of the BBR report 1.4 The Department mandate 1.5 Measurable Objectives of the Department 2.

Focus on compelling mandates 3.

Presentation of the Annual Report 4.

Analysis of the Annual Report and Financial Statements of the Department 5.

Analysis of the Annual Report and financial statements of the ARF 6.

Consideration of the Report of the Auditor-General on the Department and its entity 2020/21 7.
Findings of the Committee 8.

Responses by the Department 9.

Conclusions 10.
Recommendations 2 110 The Budgetary Review and Recommendation Report of the Portfolio Committee on International Relations and Cooperation, dated 24 November 2021 The Portfolio Committee on International Relations and Cooperation (the Committee), having considered the performance and submission to National Treasury for the medium term period of the Department of International Relations and Cooperation (the Department), and its entity, the African Renaissance and International Cooperation Fund (the ARF), reports as follows: 1.
Introduction The Portfolio Committee received the presentations on the Annual Reports 2020/21 of the Department and that of the African Renaissance Fund, on 10 November 2021.

In its consideration of the reports, the Committee also enlisted input from the Office of the Auditor-General on the annual performance of the Department and the entity, on the same day.
1.1 The scope of the report The focus of the assessment was on the performance of the five (5) key programmes of the Department namely; Administration, International Relations, International Cooperation, Public Diplomacy and Protocol Services as well as International Transfers.

The Department’s performance and that of the entity was measured against their set targets as identified in the respective Annual Performance Plans 2020/21, based on the Strategic Plans of 2020-2025.
Annual performance was also measured against Government’s key priorities identified in the President’s State-of-the-Nation Address (SoNA) of February 2020, the Government’s Medium Term Strategic Framework 2019-2024 and in accordance with information contained in the National Treasury 2020 Estimates of National Expenditure.

Other key measures comprise of the moral values and principles that underpin the country’s foreign policy.
The report also covers the views and findings of the Committee, and the resultant recommendations borne out of the Members’ 3 111 scrutiny and analysis of the performance of the Department and its entity for the reporting period.
1.2 Mandate of the Committee The Portfolio Committee on International Relations and Cooperation, is a committee of Parliament mandated by the sections 55 and 92 of the Constitution of South Africa,1 to oversee and ensure accountability in the formulation and conduct of South African foreign policy.
Consequently, the Committee conducts oversight on activities of the Department of International Relations and Cooperation and its Missions abroad, on its policies, legislation, financial spending patterns, administrative issues, and it holds the Department accountable for its operations and functions.

The Committee is thus mandated by the Constitution to legislate, conduct oversight over the Department and also facilitate public participation.
The Committee may also investigate any matter of public interest that falls within the foreign policy area of responsibility.

The Committee is thus an important mechanism for ensuring oversight over the conduct of South Africa’s international relations and cooperation policy.

1.3 Purpose of the Budgetary Review and Recommendation Report In accordance with section 5 of the Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No.
9 of 2009), the National Assembly, through its committees, must assess service delivery performance of each national department and submit Budgetary Review and Recommendation Report (BRRR) for each department, for tabling in the National Assembly.

The process allows the National Assembly to evaluate the effective and efficient use of allocation of resources; and may make recommendations on forward use of resources.
These reports will be considered by the Standing/Select Committees on Appropriations and Finance, respectively, when they make recommendations to the Houses of Parliament on the Medium Term Budget Policy Statement (MTBPS).

1 Constitution of the Republic of South Africa 1996 4 112 The Committee examined the expenditure report as published by the National Treasury, commonly known as section 32 Reports of the Public Finance Management Act (PFMA) 1999 (Act 1 of 1999).
Reference was also made to the Auditor General’s report on the 2020/21, Budget Vote 6 and the Department’s Annual Report 2020/21.

1.4 The core function and mandate of the Department The overall mandate of the Department is to work for the realisation of South Africa’s international relations policy objectives.

In terms of the provisions of the Constitution, the President of the Republic of South Africa bears the overall responsibility for the country’s foreign policy and international relations.
However, the Department is entrusted with the formulation, application and implementation of South Africa’s foreign policy which is derived from South Africa’s domestic priorities2.

The Minister of International Relations and Cooperation (the Minister) assumes overall responsibility for all aspects of South Africa’s international relations, albeit in consultation with the President.
The Minister also liaises and consults with members of the Cabinet on overlapping issues and on the priorities and programmes of other departments that bear an international relations element3.

In the same breath, other Cabinet ministers are required to consult the Minister on their international role.

1.5 Measurable Objectives of the Department The Department’s overall mandate is to work for the realisation of South Africa’s foreign policy objectives.
It achieves this through implementing identified strategic objectives aimed at responding to the domestic priorities as announced by government for the reporting year.
This is done by: Coordinating and aligning South Africa’s international relations abroad; Monitoring developments in the international environment; Communicating government’s policy positions; 2 Department of International Relations and Cooperation Annual Report 2020-2021 3 Ibid 5 113 Developing and advising government on policy options, and creating mechanisms and avenues for achieving objectives; Protecting South Africa’s sovereignty and territorial integrity; Contributing to the creation of an enabling international environment for South African business; Sourcing developmental assistance; and Assisting South African citizens abroad4.
During the reporting period, the thrust of the work of the Department remained anchored on these overarching priorities as confirmed by the January 2020 Cabinet Lekgotla and the 2020 State of the Nation Address (SoNA).

In its work on these priorities, the Department is supported by the following activities: • Organisational support; • Rendering of professional services and • Organisational strengthening.

2.
2.

Focus on compelling mandates 2.1 Analysis of the Department’s prevailing strategic and operational plans The Annual Report reflects the highlights of a number of diplomatic activities carried out by the Department including its Missions abroad.

At the time of reporting, South Africa’s representative footprint has grown from 34 in 1994 to 125 diplomatic missions in 2020/21 in 108 countries abroad, and through the accreditation of more than 160 countries and organisations resident in South Africa.
The extended footprint also put the resources of the Department under pressure, especially within the current constrained fiscal environment in South Africa.

The Department has a dynamic role to play in the improvement of the lives of South Africans.
This is achieved through identifying strategic opportunities for skills and knowledge development, targeted investments, and growing markets for South 4 Department of International Relations and Cooperation Annual Report 2020-2021 6 114 Africa’s products and services abroad.

This way, the Department ensures that international relations work is linked and responds to domestic imperatives.
During the reporting period, the Department remained focused towards implementing strategies and mechanisms to bolster regional and continental political and economic integration.

These are the apex priorities of South Africa’s foreign policy5.

The inherent foreign policy outlook guided the Department’s engagements in Africa, and with partners in the global South, developed nations of the North as well as in multilateral relations.
2.2 2020 State-of-the-Nation Address In his February 2020 State-of-the-Nation Address6, President Cyril Ramaphosa designated foreign policy as one of the government’s priorities.

Priority seven, relates to ‘a better Africa and world’.
The President confirmed the impetus of South Africa’s Foreign Policy towards multilateralism and a rules-based international system; commitment to global peace and security including sustainable economic growth; and the integration of South Africa’s economy with those of the neighbours and the rest of the continent7.

President Ramaphosa went further to say that the African Continental Free Trade Area would improve the movement of goods and services, capital and means of production across the continent8.
The President further pointed out that within the Southern African Development Community (SADC), priority would be on development of cross-border value chains in key sectors such as energy, mining and mineral beneficiation, manufacturing, infrastructure and agro-processing9.

President further elaborated that in order to gain economic development, the SADC region must be peaceful and stable and address conflicts within the region.
South Africa would use its membership of the UN 5 Annual Report of the Department of International Relations and Cooperation 2020/21 6 Ramaphosa C, State of the Nation Address 2020 7 Presidency, 2020 8Ibid 9Ibid 7 115 Security Council to promote the peaceful resolution of disputes particularly on the African continent10.
2.3 Alignment to National Development Plan (NDP) and the 2020 MTBP Statement and the 2019-2024 Medium Term Strategic Framework (MTSF) In Chapter 7 of the NDP entitled “Positioning South Africa in the world”, the National Planning Commission argued that government’s global and regional policy- making stance should be South Africa-centric.

It should also improve South Africa’s integration in the region, on the continent, among developing countries, and in the world with measurable outcomes.
The National Planning Commission also argues that policy-making should be guided by the following principles and objectives11: • Focus on what is achievable without over-committing to possibilities of regional and continental integration.

• Foreign Policy should be evaluated on a regular basis to “ensure that national interests are maximised”.
• Remain an influential member of the international community; • Deepen cooperation with Brazil, Russia, India and China as part of the BRICS group while promoting regional and continental integration; • Stabilise the regional political economy through increased integration and cooperation; and • Achieve measurable outcomes related to food, energy, education, health, transport and communication infrastructure, national defence, adjustment to climate change and economic growth to benefit all South Africans12.
2.4 Service delivery environment In its examination of the Annual report of the Department, the Committee observed that the Department had aligned itself with the prescripts of Chapter 7 of the National Development Plan entitled “Positioning South Africa in the world”.
(National 10Presidency, 2020 11 National Planning Commission, 2011 12 The National Development Plan, Chapter 7: Positioning South Africa in the World) 8 116 Planning Commission (2011): One of the objectives of the national development plan is to enhance South Africa’s position in the region and the world, and to increase trade and investment.
The plan states that the country’s foreign policy should be shaped by the interplay between diplomatic, political, security, environmental, economic and regional dynamics that define international relations.

The country should position itself as one of Africa’s powerhouses, leading development and growth on the continent.

Integration with the Brazil-Russia-India-China-South Africa group of countries should be deepened13.
In this regard the Department is doing its part in contributing to the realisation of the plan’s development goals.

These are achieved through continuing to support regional and continental processes, responding to and resolving crises, strengthening regional integration, contributing to an enabling trade environment, increasing intra-African trade, and championing sustainable development and opportunities in Africa.
The Department recognises that the NDP proposed expansion of South Africa’s trade and global market share.

To achieve this, a greater productive and export capacity and global competiveness across the region needs to be built.

The Department’s strategic focus is thus to advance a developmental integration agenda in Southern Africa.

This would be achieved by combining trade integration, infrastructure development and sector policy coordination.
The Committee, in its analysis of the Annual Report 2020/21, observed that the Department continued with its concerted efforts to execute South Africa’s international relations strategy to address the country’s domestic challenges.

In this regard, the National Development Plan enjoins the Department to contribute towards addressing the identified triple challenges of poverty, inequality and underdevelopment.

The NDP requires the Department to create a better life for all South Africans.
This it should do while meeting the country’s international obligations in a dynamic and complex global terrain.

In this vein, South Africa’s 13 The National Development Plan, Chapter 7: Positioning South Africa in the World) 9 117 foreign policy objectives remained predicted on the country’s national interest and identity.
The narrative of Africa being the bedrock of South Africa’s foreign policy gained more credence during the tenure as a non-permanent member of the United Nations Security Council (UNSC) for the period 2019 to 2020.

South Africa was endorsed by the African Union (AU) in 2018 to take up this position.

This was reported as a demonstration of confidence in South Africa’s leadership and the country’s resolve to place African issues high on the agenda of the UNSC.
Dealing with the root causes of conflict on the continent and securing vaccines remained central to South Africa’s work as the Chair of the AU in 2020.

The Department reported that the impact of the pandemic shifted the focus of some engagements to address the immediate priorities including repatriation, sharing of best practices in combating the pandemic and requests for assistance in the provision of medical supplies and PPE.
It was not possible to arrange high-level visits or in-person structured bilateral meetings during the hard lockdown; thus COVID-19 inhibited the Department from pursuing a “normal” agenda with bilateral partners.

2.5 Opening remarks by the Chairperson of the Portfolio Committee, Mr SOR Mahumapelo MP In his opening remarks, the Chairperson congratulated the Independent Electoral Commission (IEC), for conducting a free and fair local government election.
He also expressed gratitude to the Auditor-General for their work which highlights service delivery successes and challenges facing the ordinary people on the ground.

He saw the AG’s reports as a reflection of what needs to be done for the people, while measuring performance of government against its set objectives.

The Chairperson commended the Government of South Africa for its leadership role in ensuring stability in the continent and in the region.
He applauded President Cyril Ramaphosa, in his capacity as the Chair of the Southern African Development Community (SADC) Organ on Politics, Defence and Security Cooperation for his 10 118 leadership in seeking amicable solution in the political situation in Eswatini; and for his intervention in addressing the insurgency in Northern Mozambique.

3.
3.

Presentation on the annual service delivery performance of the Department in 2020/21 financial year The Honourable Minister of International Relations and Cooperation, Dr Naledi Pandor, gave an overview, in the form of introductory remarks, on the overall performance as guided by the delivery programmes of the Department and the ARF for 2020/21.

Ms Charlotte Lobe added details of the annual performance of the Department.
In her introductory remarks, the Minister pointed out that during the reporting period, despite the challenges brought about the COVID-19 pandemic, the Department continued to discharge its mandate of coordinating and implementing South Africa’s foreign policy.

South Africa’s foreign policy is grounded in the ideals of Pan- Africanism and a commitment to multilateralism, with the African Union (AU) at its core and, as a fundamental principle, the consolidation of the African Agenda.
Therefore, Africa remained the focal point of South Africa’s foreign policy during the reporting period.

Minister Pandor pointed out that it was during the reporting period, that South Africa entered its first hard lockdown.

As a result, the Department and its Missions abroad, had to learn how to grapple with the devastating impact that the pandemic had on traditional diplomatic operations.
It was highlighted that through its Missions, and despite the COVID-19 pandemic and the worldwide travel restrictions, the Department maintained a long-term perspective, aimed at increasing investment into South Africa, through focused investment promotion.

The Minister demonstrated that the Department also pursued export promotion, identified new markets and promoted South Africa as a preferred tourism destination, as the tourism sector was also severely impacted upon by the pandemic.
It was explained that these initiatives were aimed at contributing to address the triple challenges faced by the country, namely poverty, inequality and unemployment.

11 119 It was highlighted that bilateral political and economic engagements continued to provide an important basis for the strengthening of political, economic and social partnerships in the various regions of the world.
It was however, pointed out that it was not possible to arrange high-level visits or in-person structured bilateral meetings during the lockdown.

The reporting period was regarded as probably the most difficult challenge that the Department and officials at all levels, have had to deal with in recent times.

The Minister explained that the Department followed DPSA prescripts at all times, to ensure that the necessary health and safety protocols were in place.
These measures were to preserve a safe workplace environment, to ensure that the Department was able to deliver on its mandate.

The Minister acknowledged that remote working arrangements have been made more difficult by the shortage of tools of trade.

Officials were provided with data and many were using their own personal laptops and devices for their work.

It was indicated that the African continent, especially, has been severely impacted by the pandemic.
Many countries on the continent were reported not sufficiently equipped to be able to adapt to conducting business online.

Access to Wi-Fi was not always readily available, resulting in the voices of some of these countries not been adequately heard in various international fora during the year under review.

The Minister emphasised that multilateralism remains a focal point of South Africa’s foreign policy, including engagements in organisations such as the United Nations (UN) and G20.
She recapitulated that South Africa’s engagements are premised on the need to advance the priorities reflected in the National Development Plan (NDP), and to advance national interests and those of Africa and the global South.

The COVID-19 pandemic led to the postponement of key conferences and negotiation processes at the UN, such as the United Nations Framework Convention on Climate 12 120 Change (UNFCCC)’s COP26 and the United Nations Convention on Biological Diversity’s COP15.
In order to ensure continuation of business, other meetings, such as the UN General Assembly (UNGA75), and the Brazil, Russia, India, China, and South Africa forum (BRICS) and G20 Summits, were held virtually.

However, these online negotiations often made the drafting of relevant outcomes documents much more difficult and time-consuming.
Referring to one of the key highlights during the year under review, the Minister indicated that the Department concluded the second year of its third two-year term as a non-permanent member of the UN Security Council (UNSC), from 2019 - 2020.

Its term was defined by the theme “Continuing the Legacy: Working for a Just and Peaceful World,” drawing on the legacy of President Nelson Mandela following the Anniversary of the Centenary of his birth.
During this term, South Africa continued to build on the advances made in its two previous terms in the Council and focused on the implementation thereof, including United Nations (UN)-African Union (AU) cooperation, the Women Peace and Security and Youth, Peace and Security Agendas and the peaceful settlement of disputes.
It was indicated that the South African Development Community (SADC) remains a primary vehicle for South Africa’s foreign policy and the achievement of regional development and integration within Southern Africa.

It was underlined that a stable and prosperous Southern Africa is vital if the region is to fully integrate and prosper.
In line with supporting the structures of SADC, South Africa became the Incoming Chair of the SADC Organ on Politics, Defence and Security Cooperation during the 40th Ordinary SADC Summit of Heads of State and Government held on 17 August 2020.

The Summit also approved the SADC Vision 2050 and the Regional Indicative Strategic Development Plan (RSIDP) 2020 – 2030.

13 121 In 2020, South Africa also had the opportunity to Chair the African Union (AU).
Honourable Pandor saw this as presenting South Africa with an especially unique opportunity to advance the African Agenda in both institutions.

It also assisted the country to harmonise its priorities of promoting Security Council decisions in support of the AU initiative of Silencing the Guns across Africa.
According to the Minister, the COVID-19 pandemic, however, meant that South Africa’s strategy of hosting two Summits during the year, namely one on the African Continental Free Trade Area (AfCFTA) and the other on the Silencing of the Guns, had to be postponed and these Summits were, instead, held virtually.
The Minister indicated that during its term as Chair of the AU, South Africa’s priorities were peace and security, economic development and continental integration through the operationalisation of the African Continental Free Trade Area (AfCFTA).

Other key areas related to infrastructure development to facilitate continental free trade, advancing the economic inclusion of women and support of good governance and democracy.
The commencement of trading under the AfCFTA on 1 January 2021was particularly applauded as it signalled a concrete achievement under South Africa’s leadership, one that would significantly boost African economic development for many decades to come.

Furthermore, the Minister elaborated that under the able stewardship of H.E.

President Cyril Ramaphosa, South Africa was able to coordinate the timely AU response to the COVID-19 pandemic.
The response included the establishment of the AU COVID-19 Response Fund, the appointment of Special Envoys, the establishment of the Medical Supply Platform and the appointment of the African Vaccine Acquisition Task Team.

It was pointed out that a significant highlight of South Africa’s term as Chair of the AU was the appointment of President Cyril Ramaphosa by the Director-General of the WHO, alongside the Prime Minister of Norway, H.E.
Ms Erna Solberg, as co-Chairs of the Access to COVID-19 Tools Accelerator (ACT-A) High-level Facilitation Council.

During its Chairship, South Africa actively sought to promote equal access for all African countries to COVID-19 vaccines.
It was said that noteworthy was the 14 122 fact that, at the February 2021 AU Summit, where President Ramaphosa handed over the Chairship of the AU to the Democratic Republic of Congo (DRC), he was appointed AU COVID-19 Champion, in order to continue the work started during his tenure.
It was further reported that in line with its approved Digital strategy, the Department has finalised the procurement of laptops and desktops for Head Office, and expects to shortly embark on the distribution thereof to all officials.

With regard to the audit outcome, the Minister reported that unfortunately, the Department again received a qualified audit opinion.
However, she informed the Committee that an Audit Action Plan was in place, to ensure that all matters that contributed to the qualified audit opinion are addressed.

However, it was gratifying to note that the Department had again maintained an unqualified audit opinion on performance information.

With regard to Public Diplomacy, it was noted that through the use of social media, a concerted effort was made to regularly update the Department and our Missions on relevant COVID issues.
Furthermore, prepared targeted messages were made on a variety of issues, for use by Missions during their interactions in their respective countries of accreditation.

Minister Pandor specifically commended Consular Services for their sterling work during the initial lockdown period, especially with the repatriation of distressed and stranded citizens abroad.

This was reiterated as an unprecedented and hugely successful undertaking.
The Department reported that the African Renaissance Fund (ARF) continued to be an invaluable instrument in the pursuit of the National Development Plan (NDP) and Vision 2030, and the priorities of the Medium Term Strategic Framework (MTSF).

It was further highlighted that the projects that were implemented by the ARF during the reporting year, provided significant impetus to enhance the stature and public awareness of South Africa’s profile as a responsible and trustworthy development 15 123 partner.
Thus the ARF significantly contributes to priority seven of the MTSF: “A Better Africa and World”, focussing on international relations.

The Department observed that the impact of the COVID-19 pandemic has been global in both scale and reach.

This necessitated coordinated international action to capacitate all countries to respond effectively.
It was indicated that in response, President Ramaphosa pledged to support international efforts aimed at the development of new vaccines to combat COVID-19, as well as the development of new tests to rapidly diagnose the disease.
South Africa, through the Department of Science and Innovation, is co-investing with the European Union in the European and Developing Countries Clinical Trials Partnership’s rapid response programme to fund research cooperation between Africa and Europe on a broad range of COVID-19-related research.

The ARF is providing funding for the initiative.


The project is being implemented by Biovac, a public- private-partnership (PPP) formed with Government in 2003, which is mandated to establish local vaccine manufacturing capability for the provision of vaccines for national health management and security.

The ARF is providing funding for the initiative.

It was gratifying to note that during the 2020/21 financial year, the ARF processed R177 million in disbursements, and maintained a clean audit opinion.
3.1 Analysis of performance The Department reported that the achievement rate of the 2020/21 targets is at 85%, which is significantly higher than the previous year, 2019/20, (68%).

However, it was reported that the impact of the pandemic shifted the focus of some engagements to address the immediate priorities.

These included repatriation, sharing of best practices in combating the pandemic and requests for assistance in the provision of medical supplies and PPE.
The Department of Monitoring and Evaluation also expressed a view that South Africa was, to an extent, able to benefit from its international relations during the pandemic.

It was argued that it was because the country has invested time in building 16 124 and sustaining these relations and building credibility with its interlocutors over a number of years.
In the same vein, the Department reported that South Africa engaged with the international financial institutions to raise finance, helped coordinate African economic responses, and advocated for African interests in other forums.

It was further highlighted that South Africa also used its bilateral relations to obtain support for dealing with Covid-19-related interventions.
3.1.1 Review of organisational structure The office of the Chief Operations Officer (COO) was overseeing the processes relating to the proposed organisational structure.

It is envisaged that the process will be completed by the end of 2021, and eventually approved by the end of the financial year.

The reviewed organisational structure is expected to be implemented in the new financial year 2022/2023.
3.1.2 Implementation of the Foreign Service Act 2019 The annual target was to formulate codes, directives and regulations as may be appropriate, to facilitate the entry into force of the Foreign Service Act.

This target was to be achieved in the 2nd quarter of 2020/21.

During its 4th quarter reporting in August 2021, the Department reported that work was underway to proclaim a date for entry into force which was to be requested as 31 August 2021.
The annual report highlighted that at the end of the reporting year, the target was not achieved.

3.1.3 Information and Communication Technology The Department adopted its Digital strategy during the reporting year.

However, the critical element of the implementation of the ICT strategy was still lagging behind.
Hence the Department has reported that the lower expenditure on goods and services is as a result of delays in the acquiring of information and communication technology (ICT) services, as was initially planned in the 2020/21 financial year.

3.1.4 Programme 2: International Relations The reported performance under Programme 2: International Relations depicted that the Department did not achieve its annual target of reviewing its 139 structured 17 125 bilateral mechanisms (SBMs) with other countries.
At the end of the reporting period, 112 structured mechanisms were reviewed, which amounted to 87% achievement.

4.

Overview and assessment of the financial performance of the Department for the 2020/21 financial year 4.1 Financial expenditure trends of the Department The Department continued to operate in an uncertain international environment which is volatile, uncertain, complex and uncertain (VUCA) and with budget constraints.
At the end of the 2020/21 financial year, the Department spent R6 245 944 billion.

The expenditure is lower in comparison to R6, 310 billion spent in 2019/20 financial year.

The Department managed to maintain its spending within the reduced budget allocation in the implementation of the Annual Performance Plan.
This was attained through the implementation of cost saving measures, such as revision of rental norms and standards, reduction on the international travel and doing more with less through the introduction of efficiency in the operation of the missions.

However, the Department had to navigate the impact of the budget cuts experienced on the compensation of employees, which unfortunately, has resulted in the expenditure exceeding the budget ceiling.
Under this item, the Department reported that the higher expenditure trend on compensation of employees is attributable to COE ceiling implemented by National Treasury, which does not cover the cost for the filled positions, as well as the depreciation of Rand against major currencies which impacted expenditure incurred in foreign currency.

The Department has since embarked on the closure of some missions abroad.
• Goods and Services: The Department has reported that the lower expenditure on goods and services is as a result of delays in the acquiring of information and communication technology (ICT) services as was initially planned in the 2020/21 financial year, as well as the delay in transfer of officials to missions.
18 126 • Transfers and Subsidies: It is reported that the lower expenditure trend in transfers and subsidies is mainly due to the transfer payment for South African Development Partnership Agency (SADPA).

The transfer was not paid during the year due to the non-operationalization of SADPA, as well as savings arising from other transfer payments due to favourable exchange rates and reduced assessments for African Union membership.
• Capital It is reported that the lower expenditure trend on payment of capital assets is as a result of delays in the acquiring of ICT equipment as was initially planned in the 2020/21 financial year and delay in the implementation of Infrastructure plan.

Payments for financial assets- The variance is due to foreign exchange loss relating to missions’ transactions.
Table 1: Total expenditure for the 2020/21 financial year14 Programme (R'000) Administration Final Actual Appropriation Expenditure R’000 R’000 Percentage of variance 1 358 532 1 266 105 7% International Relations 3 266 959 3 390 092 International Cooperation 505 613 Public Diplomacy and Protocol 279 870 International Transfers 903 994 532 611 235 330 821 806 -4% -5% 16% 9% Total 6 314 968 6 245 944 1% Source: Annual Report of the Department of International Relations and Cooperation 2020/21 14 Annual Report of the Department of International Relations and Cooperation 2020/21 19 127 4.2 Analysis of financial performance of the Department per programme for the 2019/20 financial year Spending trends per programme were aligned to service delivery of the Department.
4.2.1 Programme 1: Administration The Department reported that during the period under review, the Programme continued to provide support with regard to the development of the overall policy and management of the Department.

This was achieved through efficient, effective and economical utilisation of scarce resources.

This programme’s expenditure is R1 266 105 billion in 2020/21.

The expenditure is lower than R1,294 billion spent in 2019/20.
The decrease in expenditure was mainly as a result of delays in the transfer of officials to missions abroad due to COVID- 19 pandemic, as well as the delay in procurement of computer equipment.

4.2.2 Programme 2: International Relations This programme’s expenditure is R3 390 092 billion in 2020/21.

The overspending which resulted in unauthorised expenditure was experienced on Compensation of Employees (COE) due to COE ceiling implemented by National Treasury.
It did not cover the total cost for the filled positions as well as the depreciation of Rand against major foreign currencies which impacted expenditure incurred in missions abroad.

4.2.3 Programme 3: International Cooperation The expenditure is R532 611 million in 2020/21, as opposed to a budget allocation of R505 613 million.

The overspending was experienced on Compensation of Employees (COE) due to COE ceiling implemented by National Treasury.
It did not cover the total cost for the filled positions as well as the depreciation of Rand against major foreign currencies which impacted expenditure incurred in missions abroad.

4.2.4 Programme 4: Public Diplomacy and Protocol Services Programme 4 expenditure is R235 330 million in 2020/21.

The expenditure is lower than R289 million spent in 2019/20.

The decrease is attributable to travel that did not take place due to lockdown restrictions.
20 128 4.2.5 Programme 5: International Transfers Programme 5 expenditure is R821 806 million in 2020/21.

The expenditure is lower than R871 million spent in 2019/20.

The decrease is attributable to the transfer payment for South African Development Partnership Agency (SADPA) which was not paid during the year due to the non-operationalisation of SADPA, and accrued savings arising from other transfer payments due to favourable exchange rates and reduced assessments.

5.
5.

Public Entity: Overview of the Annual Report 2020/21 of the African Renaissance and International Cooperation Fund The Department, in consultation with the National Treasury, is responsible for the administration of the African Renaissance and International Fund (ARF), which was established in terms of Act 51 of 2000.

This fund is under the control of the Director- General of the Department who must account for all payments into and out of the fund.
An Advisory Committee was appointed to make recommendations to the Ministers of International Relations and Cooperation and of Finance on the disbursement of funds, as provided for in the African Renaissance and International Cooperation Fund Act, 2000.15 The objectives of the ARF are to promote economic cooperation between the Republic of South Africa and other countries in particular African countries, through: • promotion of democracy and good governance, • prevention and resolution of conflict, • socio-economic development and integration, • humanitarian assistance, • human resource development, and • cooperation between South Africa and other countries16 15 Annual Report 2020/21 of the African Renaissance and International Cooperation Fund 16 Annual Report 2020/21 of the African Renaissance and International Cooperation Fund 21 129 The Fund is managed by the Department and payments are made on behalf of the Fund by the Department, once concurrence is received from the Minister of Finance.
This has resulted in the opening of control accounts (Payables and Receivables) in the accounting records of the Department and these accounts are reconciled to the records of the Fund.

The financial statements of the Fund are prepared separately from the Department as the Fund is registered as a Schedule 3A Public Entity in terms of the Public Finance Management Act (PFMA), 1999 (Act 1 of 1999).
All transactions and information arising from the work of the Fund are audited by the Auditor-General South Africa on an annual basis.17 The ARF is set up as a public entity.

However, it does not yet have all the features necessary, like other public entities, due to its placement within the Department’s structures.

The ARF is still faced with challenges of a governance nature, due to it being located within the Department and utilizing the Department’s procurement processes.
The entity does not have its own systems of financial and project management, and all its processes are manual.

The ARF secretariat comprise of employees of the Department.

The ARF has remained an important tool for the enhancement of South Africa’s development cooperation on the continent and with other identified partners.

The ARF has achieved a consecutive unqualified audit opinion without findings in 2020/21.
During the 2020/21 financial year, the ARF was reported to have processed R177 million in disbursements towards humanitarian assistance, the promotion of democracy and good governance, prevention and resolution of conflict and human resource development in Africa.

A view was expressed that the holding of regular democratic elections strengthens democracy and good governance on the continent.
Through the ARF, the Department continued to support electoral observer missions, electoral training and strengthening of democratic institutions.

Three Southern African Development Community (SADC) elections were held during the period under review, in the Republic of Malawi, Republic of Seychelles and the Republic of Tanzania.

17 Ibid 22 130 5.1.1 Service-delivery environment The report highlighted that the ARF plays a critical role in pursuing South African foreign policy in the Department.
South Africa’s foreign policy promotes the need to cooperate with all peace-loving people across the globe in pursuit of shared prosperity and a just, equitable and rules-based international order.
These were said to resonate with the objectives of the ARF are to enhance cooperation between the Republic and other countries, in particular African countries, through the promotion of democracy, good governance, the prevention and resolution of conflict, socioeconomic development and integration, humanitarian assistance and human resource development.
The ARF Advisory Committee is said to convene once a quarter to, among others things, assess and recommend requests for funding for approval by the Ministers of International Relations and Cooperation and of National Treasury.

During the 2020/21 financial year, the ARF received a total of 10 requests for funding.
Of the 10 requests, eight were recommended by the ARF Advisory Committee for approval by the Minister of International Relations and Cooperation and the Minister of Finance on the disbursement of funds through loans or other financial assistance.

Only two requests were still under considerations.

5.1.2 Achievements The ARF was able to deliver on assistance to combat Covid-19 on the continent.
This critical assistance was provided through the African Union Special Covid19 Fund and Africa Centre for Disease control (CDC).

The ARF will continue to provide assistance to countries in need in line with its objectives in an efficient manner and within the ambit of the Public Finance Management Act (PFMA), 1999 (Act 1 of 1999).
One other area of specific achievement was under the provision of humanitarian assistance programme, where it was reported that President Cyril Ramaphosa made several pledges during the AU Bureau teleconference to combat COVID-19.

South Africa, as the Chair of the AU, had an obligation to take the lead in all the causes and efforts that seek to address African challenges, including emergency issues and 23 131 pandemics like the current scourge of COVID-19.
It was highlighted that it was against this background that South Africa pledged US$6 million to the AU’s efforts, which was disaggregated as follows: • US$4 000 000.00 was contributed to the Special Fund for COVID-19, and • US$2 000 000.00 was contributed towards the Africa Centres for Disease Control and Prevention (African CDC).

5.1.3 Challenges The ARF as well was negatively affected by the pandemic in as far as discharging its mandate.

Projects on preparatory stages were delayed due COVID-19.
The monitoring of projects on the ground was negatively affected by travel restrictions.

Despite the difficulties, the ARF continued to implement and monitor projects because of the waivers that were granted for humanitarian workers.

5.2 The ARF financial report 2020/21 In terms of the Act, the appropriated funds, among other sources, consists of money appropriated by Parliament for the Fund.

During the year under review, an amount of R47 million (2020: R46 million) was appropriated to the Fund.
The interest received of R33 million (2020: R63 million) from investments, relates to the amount deposited with the Corporation for Public Deposits in the South African Reserve Bank, interest accrued on annual appropriation and loan granted to Cuba.

5.2.1 Receivables Receivables represent a loan that was granted to Cuba.

R22 million was disbursed during this financial year.

5.2.2 Expenditure During the period under review, the Fund recorded expenditure of R228 million (2020: R45 million).
For the year 2020/21, a significant amount was expensed towards humanitarian assistance projects in response to the COVID-19 pandemic.

6.

Report of the Auditor-General of South Africa 2020/21 on the Department of International Relations and Cooperation and its entity 24 132 The findings of the Auditor-General indicated that the financial statements presented fairly, in all material respects, the financial position of the Department as at 31 March 2021.
The entity’s financial performance and cash flows for the year, then ended in accordance with Modified Cash Standards (MCS) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No.

1 of 1999) (PFMA).

The Department has received a qualified audit opinion with emphasis of matters for 2020/21.

There has been a noted pendulum swing on the financial management performance of the Department.
The audit outcomes are from a qualified audit opinion in 2015/16, to an ‘unqualified audit opinion with material findings on pre-determined objectives and/or compliance with laws and regulations’ in 2016/17, to successive qualified audit opinions in 2017/18, 2018/19, 2019/20 and 2020/21.

6.1 The Department According to the Auditor-General, as of 31 March 2021, the Department has received a qualified audit opinion on its annual financial statements with findings on compliance with legislation.
The Auditor-General reported that the basis for a qualified opinion was with regard to receivables, which was in the uncorrected misstatements for cash on hand and investment foreign that was identified in 2018/19 audit of the Department.

The report demonstrated that included in the current receivables for the current and prior years is R73 277 000 (201920: R70 971 000) for disallowance and damages.
The AG was unable to obtain sufficient and appropriate audit evidence for the disallowance and damages disclosed in note 15.5 to the financial statements, as the supporting documents were not made available.

The AG was unable to confirm current receivables by alternative means.

Consequently, the AG was unable to determine whether any adjustment was necessary to the current receivables, stated at R233 247 000 (2019-20: R238 769 000) in the financial statements.
The AG further made findings of noncompliance with legislation on the following matters: 25 133 6.1.1 Unauthorised expenditure As disclosed in note 11 to the financial statements, the Department incurred unauthorised expenditure of R150 131 000.

This is due to the overspending on compensation of employees (COE).
The National Treasury has implemented a ceiling on COE which does not cover the cost for the filled positions as well as the depreciation of Rand against major currencies which impacted expenditure incurred in foreign currency.

6.1.2 Irregular expenditure As disclosed in note 31 to the financial statements, the Department incurred irregular expenditure of R 187 099 000 in the current year, mainly emanating from prior year noncompliance as proper tender processes were not followed.
In the prior year, the findings related to the expenditure on ongoing multi-year contracts.

The areas of concern were that procurement of goods and services through these transversal contracts was not in accordance with Treasury Regulation (TR)16A6.

Three quotations were not obtained as required by TR16A6 with insufficient documentation on deviations process.
Awards were made to suppliers who did not submit declarations as required by TR16A8.3; and contracts were extended/modified without approval from National Treasury, in accordance with TR16A.6.

6.1.3 Fruitless and wasteful expenditure The other matter is with regard to fruitless and wasteful expenditure to the amount of R14 572 000 incurred by the Department in the reporting year.

This was disclosed in note 32 to the financial statements.

It was as a result of cancellation fees for hotel accommodation.
6.2 Performance information The Auditor-General did not identify any material findings on the usefulness and reliability of the reported performance information for a sample on Programme 2.

The Auditor-General raised concerns with compliance with legislation.
The material findings on compliance with specific matters in key legislation were as follows: 6.3 Compliance with legislation 26 134 6.3.1 Annual financial statements and annual report The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and/or supported by full and proper records, as required by section 40(1)(a) and (b) of the PFMA.
Material misstatements of current liabilities and disclosure items identified by the auditors in the submitted financial statements were corrected and/or the supporting records were provided subsequently.

However, the uncorrected material misstatements and/or supporting records that could not be provided, resulted in the financial statements receiving a qualified opinion.
6.3.2 Expenditure Management Effective and appropriate steps were not taken to prevent irregular expenditure amounting to R19 337 000, as disclosed in note 31 to the annual financial statements, as required by section 38(1)(c)(ii) of the PFMA and treasury regulation 9.1.1.

The majority of the irregular expenditure was caused by payments made without approval at the appropriate level as per the delegation of authority.
Effective steps were not taken to prevent fruitless and wasteful expenditure amounting to R12 516 000, as disclosed in note 32 to the annual financial statements, as required by section 38(1)(c)(ii) of the PFMA and treasury regulation 9.1.1.

The majority of the fruitless and wasteful expenditure was caused by cancellation fees for hotel accommodation.
6.3.3 Consequence management The Auditor-General was unable to obtain sufficient appropriate audit evidence that disciplinary steps were taken against officials who had incurred fruitless and wasteful expenditure as required by section 38(1)(h)(iii) of the PFMA.

This was because the investigations into fruitless and wasteful expenditure were not undertaken.

The AG commended the Minister for having commenced with implementing consequence management at the high level of senior management of the Department.
The Minister was further urged to also filter down her efforts to the rest of the Department, and include all who are implicated in the investigations of irregular, expenditure as well as fruitless and wasteful expenditure.

The AG has also reported 27 135 that the irregular expenditure arising from 2017-18, 2018-19 and 2019-20 has not been investigated by the Department resulting in poor consequence management.
The Auditor General was unable to obtain sufficient appropriate audit evidence that disciplinary steps were taken against officials who had incurred irregular expenditure as required by section 38(1)(h)(iii) of the PFMA.

This was because the investigations into irregular expenditure were not undertaken.
6.3.4 Procurement and contract management Some of the goods and services with a transaction value below R500 000 were procured without obtaining the required price quotations, as required by Treasury Regulation 16A6.1 and paragraph 3.3.1 of Practice Note 8 of 2007-08.

Some of the bid documentation for procurement of commodities designated for local content and production, did not stipulate the minimum threshold for local production and content as required by 2017 preferential procurement regulation 8(2).
6.3.5 Internal control deficiencies The accounting officer has exercised his oversight regarding financial reporting, compliance and related internal controls.

However, it was not effective due to inadequate review of the annual financial statements and compliance with applicable laws and regulations.

An action plan to address audit findings was compiled and implemented by management and the accounting officer, the plan was not effective in timeously addressing all the reported control deficiencies.
Management's monitoring controls over record management were not effective to ensure that all receivables transactions recorded in the financial statement are supported by sufficient and appropriate evidence.

Management reviews of the annual financial statements (AFS) were not adequate as they did not prevent, detect and correct material misstatements on the annual financial statements before they were submitted for audit.
28 136 Management involved in compliance monitoring processes did not take accountability to address previously reported deficiencies and non-compliance with legislations, as repeat findings were noted in this regard.

The lack of implementation of consequence management process within the Department resulted in repeat audit findings.
Officials were not held responsible for breaching the legislation and consequently failing to prevent irregular expenditure and fruitless and wasteful expenditure due to no response by the accounting officer.
6.4 The findings of the Auditor-General on the African Renaissance and International Cooperation Fund 2020/21 In the Auditor-General’s opinion, the financial statements presented fairly, in all material respects, the financial position of the African Renaissance and International Cooperation as at 31 March 2021.
They also presented fairly its financial performance and cash flows for the year then ended, in accordance with the Standards of Generally Recognised Accounting Practice (GRAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No.

1 of 1999) (PFMA).

Consequently, the ARF received an unqualified audit opinion without findings in 2020/21 financial year.

Overall, the performance of the entity has improved significantly since it has a permanent secretariat.
The AG reported satisfied that the internal audit function is operating effectively, and that it has addressed the risks pertinent to the entity in its audits.

The Auditor General’s report has highlighted that the National Treasury is investigating possible irregularities in the African Renaissance and International Cooperation Fund’s state of affairs, at the request of the former minister of the Department of International Relations and Cooperation.
The investigation covers the period from 2012-13 to the 2017-18 financial years.

The investigation had not yet been concluded and was still in progress at the date of this auditor’s report.

29 137 7.

Findings by the Committee After due deliberations on the contents of the Annual Report of the Department and its entity, the Committee made the following findings: 1.
The audit on performance reporting of the Department was found to have been useful and reliable in accordance with the applicable criteria defined in the reporting frameworks.

The audit outcome on performance information has been positive for the past three years.

The Committee commended the Department for the consistent and positive outcome on performance reporting.

2.
2.

The Committee has noted with concern, the difference in the manner the Department has managed performance information better than its annual financial statements.

3.

The Department received a financially qualified audit opinion with findings on compliance with legislation in the 2020/21 financial year.

The Department was still struggling to resolve the prior year qualification area on current receivables (disallowance and damages account).

4.
4.

The Department has reduced the material misstatements in this account from R186 million to a balance of R73 million, however it was not enough to address the qualification.

Even though the Department had obtained the services of a forensic investigation firm to assist in addressing the qualification area, this did not yield a positive result.

5.
5.

The prevalent instances of non-compliance are in the areas of expenditure management, supply chain management, consequence management and material misstatements identified in the financial statements submitted for audit.

Findings raised are in most instances recurring findings, indicating that audit action plans and a culture of consequence management is not exercised effectively.

6.
6.

The Department has continued to incur irregular expenditure due to noncompliance with legislation findings on supply chain management (SCM) processes.

This was mainly from missions where quotations were not obtained or expenditure incurred on expired contracts.

30 138 7.

The ARF received an unqualified opinion with no findings.
It maintained clean audit outcomes because it has consistently demonstrated the basic financial discipline, consistent reviews and monitoring of compliance with applicable laws and regulations.

8.

The Committee commended the Minister for implementing consequence management at the highest level within the Department.

It further noted that the Minister’s efforts on consequence management have not yet filtered down to the rest of the Department, to promote a culture of consequent management.

9.
9.

The irregular expenditure arising from 2017-18, 2018-19 and 2019-20 has not been investigated by the Department.

10.

Committee noted with appreciation the good and selfless work by the Department in carrying out an unprecedented and hugely successful undertaking of repatriating citizens from across the globe, because of the lockdowns imposed by the coronavirus pandemic.

11.

A concern was raised that the preparation of financial statements remains a challenge for the Department.
Material adjustments on misstatements had to be effected to the Annual Financial Statements (AFS) submitted for audit.

12.

It was noted that transactions of this nature require a Finance Team that is adequately qualified to deal with complex accounting standards within diverse multi-currency environment.

Foreign exchange gains or losses require high level skills and frequent reconciliation exercises performed on time.
It transpired that record keeping of financial transactions remained a challenge in both missions and headquarters.

There is a lack of daily reconciliation of transactions, to unpack receivables and payables.

13.

Compliance with applicable legislation is another area of concern for the Department especially in supply chain management (SCM).

14.

The Department continued with contracts which were irregularly awarded.
One such contract is the bandwidth contract provided by the BT Communications for which the CFO was charged but not found guilty.

The Department incurred irregular expenditure of R187 million in the current year.

The majority of irregular expenditure was caused by contracts that were extended/varied without approval from National Treasury.

31 139 15.

The Department incurred unauthorised expenditure of R252 million in the reporting year.
This is due to the compensation of employees ceiling implemented by National Treasury which does not cover cost for the filled positions.

16.

The Committee noted the achievements in the implementation of South Africa’s Foreign Policy.
Through the work of the Department and Missions abroad, South Africa has gained recognition in its promotion of multilateralism in global governance and is a respected global player, who champions the aspirations of developing countries, including those of Africa and the Global South.

17.

The Committee applauded President Ramaphosa for the sterling work in his capacity as the AU Chair, in coordinating access to vaccines and preparedness of Africa to manage the pandemic.
He being appointed a COVID-19 Champion to continue the good work he was undertaking.

18.

It was observed that some of the Corporate Service Managers (CSMs) do not have formal finance background training and experience.

Some Missions were contributing to the cash and cash equivalents and receivables findings because of lack of financial management skills.

19.
19.

It seemed like the Deputy Directors General (DDGs), under which these defaulting Missions fall, have also neglected their duty to assist the Department, by working closely with the Heads of Mission and Corporate Service Managers to deal with some of the root causes for repeat findings coming from their respective missions.

Dedicated oversight meetings with respective DDGs are required.

20.
20.

The Committee expressed a view that consequence management should be embedded in the processes of the Department, not for it to await a finding by the AG.

21.

It was noted that some of the contracts were awarded to suppliers who had no tax clearance by the South African Revenue Services; and to bidders who did not submit the required declarations as required by National Treasury.

22.

The Committee noted that the Department was able to have a credible asset register.
It sought to understand why it took long for the Department to investigate the disallowance account, and the specific challenges preventing it to overcome the situation.

32 140 23.

It became clear from the report that once again the Department did not achieve the target relating to the implementation of the digital transformation through the acquisition of ICT equipment.
The Committee sought clarity regarding specific challenges in supply chain management which resulted in the Department having taken almost 3 years to purchase laptops and desk top computers; and on plans in place to address those challenges.

24.

It was previously reported that the bandwidth procurement process has been under way for some time and that the current service provider has had to be extended over several times, despite the fact that irregular expenditure has been incurred on the tender.
The Committee sought assurances that this time around the Department is expediting the procurement process for the new service provider and that the green one (BT Communications) is being terminated.

25.

The Committee noted that it has repeatedly commended the Department for clean audit received by the ARF.

However, it expressed a concern that the fund seems not to have impact on this country’s development cooperation agenda.
More information was sought on the plans underway to ensure that the disbursement of the funds from the ARF demonstrates South Africa’s contribution to the objectives set out in the ARF Act.

Also, more information should focus on the turnaround time for the development interventions to be implemented and the extend this has impact on the beneficiary country.

26.

More information was sought on the unfolding scenarios regarding the granting of an observer status to the State of Israel at the African Union.
27.

Progress report was sought on the issue of a video on social media, where, seemingly, a South African student was ill-treated in the hands of Cuban police.

28.

A concern was raised regarding the low spending under programme 5: Transfers, due to the fact that SADPA is not active, as the migration from the ARF arrangement has still not materialised.

The Department was asked to provide assurance that National Treasury would not end up withdrawing the allocation altogether.

29.
29.

Clarity was further sought as to whether internal control mechanisms were functioning optimally.

It was wondered why then the Department would remain in a sea of recurring audit findings if the checks and monitoring compliance mechanisms were effective.

33 141 30.
33 141 30.

The Committee unanimously resolved that, based on the recurring findings of the Auditor General and the challenges of the Department in addressing the matters in the Finance branch, the presentation of the Audit Action plan could no longer be delayed.

It must have timeframes and its implementation be quarterly reported on.

Progress on the actions taken should be a standing agenda item.

31.
31.

The high rate of vacancies relating to critical positions in the Department was a matter of great concern.

32.

More information was sought regarding the monies owed the Department of Home Affairs, usually collected in the Missions abroad as fees for civic services offered.

The issue was seen as having potential to create a finding for the Department in the future.

33.

Daily reconciliations of monetary transactions continue to be a challenge for the Department and Missions abroad.
This results in unreliable records which accumulate and create cash and cash equivalent issues.

34.

It was concerning that the processes towards the implementation of the Foreign Service Act 2019, were not finalised within the stipulated timeframe during the reporting period.

35.

The brief account of what transpired during discussions between the Acting DG and the Minister relating to the Acting DG’s Facebook post, was regarded as disgracious, and therefore not acceptable as an apology to Members.

36.
36.

The following reports which are still outstanding, be presented to the Committee without further delay: • The investigation into the allegations of financial misconduct of the DG, that led to his charges and subsequent dismissal, and to what extent it had different findings from the Committee’s New York oversight report.

• Progress on the appeal of the judgement against the Department on the New York matter, aimed at reviewing and setting aside of the tender.
• Progress on the plans to circumvent the state of affairs regarding neglected and dilapidated buildings abroad.

• Progress on the investigations regarding the payment in vain of R2.5million for a design of an Official Residence in Botswana.

34 142 • An update on the effectiveness of the Audit Action Plan.

• There is a need for a dedicated meeting to address the innuendos levelled against committee members by the acting accounting officer, in her Facebook page.

8.
8.

Responses by the Department The Department responded to the Committee’s findings and observations as follows: 1.

The Department has reduced the material misstatements in the disallowance account from R186 million to a balance of R73 million, however it was not enough to address the qualification.

The finding is part of the audit action plan, and it would be soon addressed.

The Department acknowledged that it acted late in addressing the issue of the disallowance account.

2.
2.

The Department would endeavour to mirror the good practices from the ARF, in its path towards an unqualified audit opinion.

It was however, the believe of the Department that a great deal has changed in the Department since the last financial year.

3.

The Department has identified critical positions that require to be filled.

The key focus would be to get young people into the Department.

In this regard, the post of the CFO has been advertised, with a key requirement for a chartered accountant.
The Minister has since received a delegation from the President to advertise the DG position.

The Committee would benefit from seeing the CVs of shortlisted individuals.

4.

The Department is obliged to provide consular services and strongly believe repatriations were successful.

5.

The meeting of the Executive Council of the African Union has referred the matter of Israel being given an observer status to be addressed by the Heads of State and Government.
SADC and South Africa are steadfast that the decision should be rescinded.

6.

The telecommunications sector in South Africa is impacted upon by the sanctions imposed on Huawei.

South Africa has asked US and China to solve their trade wars.

35 143 7.

There should indeed be a daily reconciliation of accounts both in the Missions and headquarters.

The challenge is that the systems for reconciliations in both areas are not synchronised.
The Department only receives the records at the end of the month, and by then it would be too late.

National Treasury has been requested to lift the moratorium for the Department to buy its own system, which would be linked to missions abroad.

8.

Nineteen maintenance projects are on-going, 10 of which are in Africa.

The Department is focusing on the conditions of the properties, to have a holistic approach to maintenance plans and actions.
The Department of Public Works has already issued a concurrence letter for the Department to dispose of properties should it be necessary.

The Department has sought an expert assessment to determine the course of action needed for the properties identified.

9.

The acting DG explained that she told the Minister that she went on Facebook to air her views because she was aggrieved by Members of the Committee.

She was told that was not the way to address the matter and she apologised.

10.
10.

The Auditor General expressed appreciation for the tone of the Committee on the need for consequence management and the addressing of recurring issues to be embedded in the operations of the Department.

Furthermore, the Committee’s resolve to regularly invite the internal audit and audit committee, was welcomed.

The AG further offered to assist the Committee in ensuring the effectiveness of the audit action plan.

9.
9.

Conclusions Non-financial performance by the Department in the reporting year has been commendable.

The Committee is encouraged by the efforts undertaken to contribute towards a better life for all in South Africa; striving for a stable and secure continent; and creating a better world for all.

The Committee expressed satisfaction that, except for the possible effects of the qualified audit opinion, the Department has utilised its budget in accordance with its plans for 2020/21.
The Department was regarded as having demonstrated accountability to Parliament and the people of South Africa on resources spent, and 36 144 how it contributed in the achievement of South Africa’s national priorities.

The Department was applauded for continuing to position South Africa as a respected member of the international community, with a dynamic and independent foreign policy that speaks to the country’s domestic priorities.
The Committee noted recurring weaknesses highlighted by the Auditor-General.

It further welcomed the acknowledgement and commitment by the Department, to improve in addressing operational challenges, consequence management and maintaining clean governance approach.

The Accounting Officer and Senior management and in particular the Finance branch, were regarded as critical in addressing the recurring challenges that renders the Department amenable to qualified audit opinions.
Their attitude to and knowledge of their work, cooperation and attendance of meetings where these issues are addressed, were regarded as important links for enhancing the performance of the Department.

The Committee reiterated the importance of consequence management efforts trickling down to the lower levels in the Department.
The Department also expressed determination and undivided attention to pursue best practices in the areas of consequence management, expenditure management, contract management, financial management, supply chain, and information and communications technology, as raised by the office of the Auditor-General.

The Committee noted that there is room for improvement with necessary adjustments in service delivery.
With regard to the ARF, the Committee found that the overall performance of the ARF as good, and cautioned against the slow pace of migrating to an agency, the South African Development Partnership Agency (SADPA) as directed by Cabinet in 2009.

The ARF was noted as working in line with the aspirations of the NDP in pursuing a peaceful and prosperous Africa.

The Committee urged the Department to publicise the good work done through this foreign policy soft power instrument.

10.
10.

Recommendations 37 145 The Committee is of the opinion that overall the Department has performed according to the goals it had set itself for the 2020/21 reporting period.

The 2020/21 budgetary allocations of the Department were generally aligned to the national strategic priorities outlined in the 2020 State-of-the-Nation Address, as well as its strategic direction in terms of its Medium Term Expenditure Framework 2019-2024.
An undertaking by the Department to improve on weaknesses identified by the Auditor- General, and working towards a clean audit, would demonstrate a positive indication of commitment of purpose by the Department to diligently execute its mandate.
In order to further assist the Department to enhance its performance, the Committee recommends that the Minister ensures that the Department implements the following and report to the Committee within three months of the adoption of this report by the National Assembly: 1.

Maintain the standard of unqualified opinion on performance reporting and apply the strategies used to improve financial reporting.

2.
2.

Expedite the forensic investigation into the unexplained transactions totalling R73 million on disallowance account and report to the Committee on the findings, recommendations and implementation thereof.

3.

Show what steps are being taken as remedial action for root causes of negative audit outcomes for the Department, and report quarterly on progress thereof.

4.
4.

Finalise and implement audit action plan timeously to address both recurring and new audit findings, especially with reference to compliance with legislation.

5.

Ensure that the Internal Audit Unit together with the Audit Committee review the audit action plan to ensure that root causes are properly identified and that it is adequate to address findings.

6.
6.

Investigate all reported unwanted expenditure (irregular, as well as fruitless and wasteful) for the following financial years: 2017-18, 2018-19 and 2019-20 and report on progress thereof quarterly.

Consider possible investigation on former Ministers and DGs for irregular expenditure based on the related report.

7.

Ensure that record management is enhanced to prevent repeat limitation findings.

8.
8.

Maintain basic financial discipline of preparing and performing detailed reviews of monthly reconciliations.

38 146 9.

Consider approaching the National Treasury, to assist in the conduct of a thorough competency assessment of the financial management function in particular, as well as provide support to the identified skills deficiencies in the Finance Branch in general.

10.
10.

Ensure that suitably qualified accountants, including personnel accredited by the Institute of Chartered Accountants in near future or through other means, are recruited.

11.

Expedite review of the organisational structure to, among others, separate the Finance branch from property management and all other non-financial units.

12.

Terminate all expired contracts with service providers and report to the Committee on a quarterly basis of the progress thereof.

13.
13.

Ensure that a culture of consequence management is cultivated and maintained in the Department.

14. Review policy for posting of administrative officials abroad, as some of the Corporate Service Managers (CSMs) do not have formal finance background, training and experience.

15.
15.

Ensure that heads of line function branches (Deputy Directors-General) work closely with the heads of missions and corporate service managers to deal with the recurring root causes for repeat findings in their respective missions.

16.

Fast-track the procurement of laptops, desk tops and computers, and finalise all other related processes, to facilitate the implementation of digital transformation.

17.
17.

Prioritise the finalisation of processes for the required regulations, codes, directives for the full implementation of the Foreign Service Act 2019.

18.

Conduct an impact assessment on the work of the African Renaissance Fund, with details of how the disbursement of funds from the ARF contributes to South Africa’s development cooperation agenda.

19.

Prioritise the processing of the Partnership Fund for Development Bill, and stipulate timeframes, to facilitate the migration from the ARF to SADPA.
20.

Ensure that all the outstanding reports due to the Committee are finalised and presented within 60 days.

To the National Assembly: 39 147 22 The National Assembly should consider the importance and uniqueness of the oversight mandate for the Committee, which warrants that it conducts oversight beyond the borders of South Africa, where South Africa’s Foreign Policy is implemented.
The prevailing Parliamentary Oversight Model, is inward-looking, envisaging oversight by committees only inside the country, thus excluding the requirement for oversight beyond the borders of the country.

The oversight mandate of the Committee includes the following areas: - South Africa’s Missions abroad are responsible for the implementation of South Africa’s Foreign Policy in their areas of accreditation.
There is a need for the Committee to conduct oversight, at least twice a year, on these Missions to ensure service delivery.

- The Committee conducts Parliamentary Diplomacy jointly with counterpart committees in other countries, to assess the implementation of structured bilateral mechanisms that South Africa has with strategic partners across the world.

- It also conducts verification oversight visits to project areas of the African Renaissance Fund (ARF) in Africa and elsewhere.
- The Committee should also attend and monitor the participation of South Africa in multilateral forums related to Foreign Policy.

This is to assess the impact of the Department’s participation on the outcomes of those organisations.

23 Facilitate synergies between the PGIR and the Portfolio Committee on International Relations and Cooperation for effective international participation.
24 Consider liaising with the Portfolio Committee when proposing establishment of bilateral and multilateral Friendship Groups agreements.

The friendship groups best illustrate the bilateral exchanges between parliaments, in particular with regard to the development of parliamentary diplomacy.

The activities of these groupings rely on an oversight framework of committees, and should the occasion arise, the opinion of the Portfolio Committee on International Relations and Cooperation should be considered.
40 148 25 The Committee should be allowed to attend the annual Heads of Missions Conference in order to sharpen oversight on foreign policy trends and priorities discussed during these conferences.

The South African Missions abroad are the implementing mechanisms of the South Africa’s Foreign Policy.
26 The Committee, as a whole, should be allowed to conduct state of readiness oversight visits where the Department is responsible for facilitating the hosting of international conference with a foreign policy undertone.

27 The Committee, as a whole, should be allowed to attend international conferences held in South Africa in pursuance of South Africa’s Foreign Policy.

Report be considered.

41 149 Sources § Annual Report 2020-2021 Department of International Relations and Cooperation.
§ Annual Report 2020/21 African Renaissance Fund § Strategic Plan, 2020- 2025, Department of International Relations and Cooperation.

§ National Treasury, 2020, Vote 6: International Relations and Cooperation, Estimates of National Expenditure 2020.

§ Auditor General Report 2020/21 § Ramaphosa, C. 2020, State of the Nation Address at the Joint Sitting of Parliament.

Cape Town.
Cape Town.

§ The African Renaissance and International Cooperation Fund Act 2000 § Standing Committee on Appropriations: 4th Quarter Expenditure Report 2020/21 financial year.

42 150 4.

BUDGETARY REVIEW AND RECOMMENDATIONS REPORT (BRRR) OF THE PORTFOLIO COMMITTEE ON PUBLIC SERVICE AND ADMINISTRATION ON THE DEPARTMENT OF PUBLIC SERVICE AND ADMINISTRATION (DPSA), AND THE CENTRE FOR PUBLIC SERVICE INNOVATION (CPSI) 2020/21 FINANCIAL YEAR, DATED 24 NOVEMBER 2021 1.
BACKGROUND The Portfolio Committee on Public Service and Administration (hereinafter referred to as the Portfolio Committee) having considered the directive of the National Assembly, which is in line with Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.

9 of 2009 to consider and report on the Annual Reports of the Department of Public Service and Administration, and Centre for Public Service Innovation, reports as follows: 2.
INTRODUCTION Parliament derives its mandate from the Constitution of the Republic of South Africa.

The strategic objectives of the Portfolio Committee are informed by five strategic goals of Parliament.
The functions of the Portfolio Committee on Public Service and Administration are as follows: • Participating and providing strategic direction in the development of the legislation and thereafter passing the laws; • Conducting oversight over the Executive to ensure accountability to the Parliament towards achieving an effective, efficient, developmental and professional public service; • Conducting public participation and engaging citizens regularly, with the aim to strengthen service delivery; oversee and review all matters of public interest relating to the public sector; • Monitoring the financial and non-financial aspects of departments and its entities and ensuring regular reporting to the Committee, within the scope of accountability and transparency; 1 151 • Supporting and ensuring implementation of the Public Service Commission (PSC) recommendations in the entire public service • Participating in international treaties which impact on the work of the Committee.
On November 10, 2021, the Committee considered the Annual Report for 2020/21 financial year of the Department of Public Service and Administration and Centre for Public Service Innovation for the Budgetary Review and Recommendations reports.

3.

PURPOSE OF THE BUDGETARY REVIEW AND RECOMMENDATIONS REPORT In terms of Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.
9 of 2009 the National Assembly, through its Committees, must annually compile Budgetary Review and Recommendations reports (BRRR) that assesses service delivery and financial performance of departments and may make recommendations on forward use of resources.

The BRRR is also a source document for the Committees on Appropriations when considering and making recommendations on the Medium Term.
The Money Bills Amendment Procedures and Related Matters Act, section 5 (3) highlights focus areas on the budgetary review and recommendation report as: • Providing an assessment of the department’s service delivery performance given available resources; • Providing an assessment of the effectiveness and efficiency of the departments use and forward allocation of available resources; and • Including recommendations on the forward use of resources.
3.1 Method The Portfolio Committee on Public Service and Administration compiled the 2020/21 BRRR using the following documents: • The National Development Plan: Vision for 2030.

• Medium Term Strategic Framework 2019 - 2024.

• • • • State of the Nation Address 2020.

Strategic Plans of the Department and CPSI.

National Treasury (2020) 4th Quarter Expenditure 2020/21 Financial Year.

Annual Performance Plans of the Department and CPSI.

2 152 • • • Annual Reports 2020/21 of the Department and CPSI.
Auditor-General South Africa’s outcomes of audit findings 2020/21.

The Portfolio Committee also met with the leadership of the Department and CPSI.

4.

NATIONAL DEVELOPMENT PLAN VISION 2030 The Department of Public Service and Administration is required to implement and coordinate interventions aimed at achieving an efficient, effective and development oriented public service, which is an essential element of a capable and developmental state as envisioned in the National Development Plan (NDP) 2030.
In relation to the National Development Plan 2030, the Department has the following strategic priorities: • Measures to advance women’s equality.

• Graduate recruitment scheme for the public service to attract highly skilled people.

• Realising a developmental, capable and ethical state to ensure a dignified treatment of citizens.

• Addressing unevenness in state capacity to deal with uneven performance in local, provincial and national government.
• Professionalisation of the public service in order to: ü Put in place the Administrative Head of the Public Service.

ü Introduce a hybrid system for the appointment of Heads of Department (HoDs).

ü Establish delegations of authority and principles on human resource matters.

ü Address the shortage of scarce skills.

ü Solve skills shortage at technical and managerial levels.

ü Improve intergovernmental relations.

ü Fight and eliminate corruption in the public service.
ü Foster leadership and inculcate responsibility throughout society.

ü Put responsibility for human resource matters on the shoulders of the HoDs.

3 153 5.

MANDATE OF THE DEPARTMENT OF PUBLIC SERVICE AND ADMINISTRATION The mandate of the Department of Public Service and Administration is derived from Section 195(1) of the Constitution to implement basic values and principles that the public service should adhere to, and the Public Service Act (PSA) of 1994, as amended.
In terms of the PSA, the Minister for the Public Service and Administration is responsible for establishing norms and standards relating to: v The functions of the public service.

v Organisational structures and establishment of departments and other organisational and governance arrangements in the public service.

v Labour relations, conditions of service and other employment practices for employees.

v The Health and wellness of employees.

v Information management.


v Electronic government in the public service.

v Integrity, ethics, conduct and anti-corruption; and v Transformation, reform, innovation and any other matter to improve the effectiveness and efficiency of the public service and its service delivery to the public.
5.1 Strategic Goals The priorities for the Department of Public Service and Administration over the medium term period are informed by the National Development Plan objectives, which are therefore translated into the Medium Term Strategic Framework (MTSF) 2019-2024.
The Department highlighted the following priorities to the Portfolio Committee: (i) A stable political-administrative interface Promoting stability of leadership in the top levels of bureaucracy, which is central to building a capable and developmental state by introducing clear delegations, effectively managing the political-administrative interface, improving public confidence in the process and quality of appointments.
4 154 (ii) A public service that is a career of choice Promoting the public service as a career of choice by adopting a long term approach to developing the skills and professional ethos that underpin a development oriented public service, recruiting young professional into the public service, ensuring that the work environment is conducive for learning to take place on the job and by adhering to the Constitutional principles that guide personnel practices.
(iii) Efficient and effective management and operations systems Improving management and operations systems to challenges frontline staff face in delivering quality services to citizens by clarifying responsibilities, introducing efficient and effective work processes, including IT systems that are tailored to specific areas of service delivery and by delegating greater authority to resolve day-to-day problems.
(iv) Increased responsiveness of public servants and accountability to citizens Improving accountability as set out in the Batho Pele Principles and the Public Service Charter by strengthening accountability to citizens, particularly at the point of delivery, increasing the responsiveness of public servants to the views and concern raised by citizens and other service user and by developing the capacity to monitor the quality of service provision and effecting the required improvements.
(v) Improved mechanisms to promote ethical behaviour in the public Improving confidence in the integrity of the public service through strengthening the fight against corruption by effecting amendments to the relevant codes of legislation in order to limit the scope for conflicts of interest, preventing public servants from doing business with the state and by building the capacity of departments to investigate issues relating to ethics, integrity and implement disciplinary actions on cases where there is a possible or actual conflict of interest.
5 155 6.

STATE OF THE NATION ADDRESS (SONA) 2020 The key priorities identified in the SONA 2020 for the sector were: 6.1.

State Capture and corruption With regard to the issue of State Capture, SONA 2020 announced that Government had “acted decisively against state capture and fought back against corruption and will not let up in the fight against corruption and state capture.” This was in reference to the establishment of the Zondo Commission of Inquiry into State Capture by former President Jacob Zuma.
The Commission of Inquiry is currently in the process of finalising its work and will propose recommendations concerning the information and evidence presented to it by witnesses.

SONA 2020 also announced the establishment of a joint government and civil society working group charged with developing a national anti-corruption strategy and implementation plan, which Government planned to launch by mid- 2020.

Regarding corruption in the public service, the Public Administration Management Act, No.
11 of 2014, with subsequent Public Service Regulations of 2016, must be fully implemented, as these are the safeguarding measures already in place to prevent officials from conducting business with the State.
6.2 Building a capable State SONA 2020 indicated that the capacity of the State would be built by, amongst others, improving the capabilities of public servants through the introduction of a suite of compulsory courses by the National School of Government, covering areas such as ethics and anti- corruption, senior management and supply chain management, and deployment of managers to the coalface to strengthen service delivery.

The National School of Government is mandated to respond to this priority.
Departments are responsible for identifying training needs in their respective sectors to enable the School to design curricula, and where the School cannot, solicit collaborative assistance from tertiary institutions and the sector education and training authorities (SETAs).

Each Department pays one per cent of its budget towards training to relevant SETAs.
6.3 Containing the wage bill SONA 2020 announced that the 2018 public service wage agreement exceeds budgeted baselines by about R30.2 billion through 2020/21.

National and provincial departments were expected to absorb these costs within their R1.8 trillion compensation baselines over 6 156 the same period.
Whilst future containment of the public service wage bill is necessary given the economic climate, the cycles from 2017/18 to 2019/20 had a lot of challenges with organised labour unhappy with Government being unable to honour the Bargaining Chamber Resolutions to pay increments until March 2021.

7.

STRATEGIC PRIORITIES OF THE DEPARTMENT As the lead Department pursuant to Priority 1 of the 2019-2024 MTSF, i.e.
the creation of a capable, ethical and developmental State, the Department of Public Service and Administration, in its Strategic Plan and 2020/21 Annual Performance Plan, identified the following five strategic outcomes: 7.1 The full implementation of the Public Management Administration Act (PAMA) The Public Administration Management Act, No.
11 of 2014, seeks to provide a uniform legal framework across the three spheres of government as part of bringing some degree of commonality of purpose in key public administration areas.

The Public Service Regulations of 2016, which were passed pursuant to the Act, were implemented in a phased manner.

During the course of the financial year under review the Department embarked on amending the Public Service Act,1994 in order to subsequently amend the Public Management Administration Act (PAMA).
Consultations were held with the Department of Cooperative Governance on the draft Public Administration Management Amendment Bill, and the Bill was developed and gazetted.

The draft Bill seeks to amend the Public Administration Management Act, No.

11 of 2014.

Regulations on selected areas of the Public Administration Management Act were developed to support the implementation of the Act.
The PAMA has not been fully implemented because the Public Service Regulations 2016 were implemented in a phased manner since the promulgation of the Act.

7.2 Stabilising the Public Service This policy directive is meant to regulate the issue of public service delegations between the Executive Authority (EA) and the Accounting Officer (who is either a Director-General (DG) or a Head of Department (HoD)), as well as Members of the Senior Management Service (SMS).
However, stabilising the Public Service will prove challenging if the political- 7 157 administrative interface is not stable.

The findings from research undertaken across the public service indicate that within a legislative system that provides for discretionary delegations by Executive Authorities, the rate of compliance to public service policies remains unacceptably low.

Sound public administration should not be subjected to decisions for political expedience.
Therefore, there is a need for the Public Service Act to be amended to provide Heads of Department (HoDs) with original powers in respect of the organisational and human resource matters.

This will also align the powers of HoDs in terms of Public Service Act and the Public Finance Management Act (PFMA).
7.3 Intensifying the fight against corruption The following measures were undertaking as efforts to promote anti-corruption efforts in the public service: • A database on Public Service employees appointed as board members to entities was developed and compiled.

The database is one of the measures to track the activities of board members in their governance roles of public entities.
• In terms of Regulation 8 of the Public Service Regulations 2016 (PSR), the DPSA is mandated to monitor adherence to policy prohibiting public service employees conducting business with the State and to monitor the performance of other remunerative work by public service employees.
• Financial Disclosure Framework: In line with regulation 18(1) and (2) of the 2016 PSR, the e-Disclosure system was opened from 01 to 30 April 2020 to enable the Senior Management Service (SMS) members to disclose their financial interests.
7.4 Implementation of administrative policies This policy directive was achieved through implementing, among others, the following administrative policies: • Career Incidents of Heads of Heads of Department: The broad aim of this policy is to ensure that there is clear guidance in terms of administrative processes and management of career incidents in a meritocratic manner.
• Performance Management and Development System: The biggest challenge of the current PMDS is that it is still a paper-based manual system that requires automation.

8 158 Consultation processes will be embarked on to review the PMDS towards automating it.

During the financial year under review a draft project charter was developed to establish a roadmap for the review process.
7.5 Improved implementation of Batho Pele Principles This was implemented through developing the Batho Pele Revitalization Strategy, which sought to review, modernise and renew the Batho Pele Programme to ensure improved services to the new emerging demanding citizenry.

8.
8.

DEPARTMENT AND ENTITIES’ PROGRAMME PERFORMANCE 8.1 DEPARTMENT OF PUBLIC SERVICE AND ADMINISTRATION 8.1.1 Budget Allocated and Expenditure 2020/21 The Department of Public Service and Administration spent R430.5 million (91.8 per cent) of its final 2020/21 budget allocation of R468.8 as at the end of March 2021, whilst achieving 25 (83 per cent) of the 30 targets set for the year.
The main cost drivers of the total Vote budget were: Administration (R225.9 million); due to work and consultation done to amend legislation (PAMA and the Public Service Act); Service Delivery Support (R84.0 million) due to inspections and monitoring and providing quality checks on Service Delivery Improvement Plans; Public Service Employment and Conditions of Service (R59.7 million) due to negotiations and bargaining processes regarding conditions of service with organised labour.
Total expenditure on Compensation of Employees amounted to R269.9 million or 92.5% of the final budget of R291.8 million.

The underspending is mainly due to unfilled vacant posts throughout the department.

The Department were in the process of amending its organisational structure to bring it in line with the core functions of the department and to optimise utilisation of available human resource.

The process delayed the filling of vacant posts.


The Department did not incur any unauthorised expenditure during the year under review.

A total amount of R314.554 thousand was incurred as irregular expenditure of which R303 839is in relation to salaries paid for services rendered after employment contracts ended and R10 715.13 in relation to payment where the contract has expired and not extended in time.
A fruitless and wasteful expenditure amounting to R98 846.00 was incurred of a salary 9 159 overpayment of which debt was taken on.

The number of posts on the establishment of the Department increased in the 2020/2021 reporting year from 423 in 2018/2019 to 433 in 2020/2021 (excluding the Minister and Deputy Minister), 365 of these were filled posts compared to the 368 filled posts in the 2019/20.
The Department spent 99.6% of the total voted expenditure for compensation, with more spending realised in salary levels 13-14.

As of 31 March 2021, the DPSA had a total of 37 persons employed additional to the fixed establishment (which includes 17 persons in the Internship Programme), compared to the 67 persons employed additional to the establishment in the 2019/2020 financial year (which included 20 persons in the Internship Programme).
The vacancy rate increased from 13,40% (2019/20) to 15.70 in the reporting year.

The vacancy rate on levels 9 to 12 was reported the highest (19%) in the current reporting year.

However, the vacancy rate on SMS level decreased to 17.4%, compared to the 24.8% reported in the 2018/2019.
The Department prepared for a restructuring of the organisational structure on MICRO structure level during the reporting year and therefore vacant posts on levels below SMS level’s filling was delayed, to ensure that posts that will be redefined in the new structure are not filled in the reporting year.

There are 33 posts out of a total of 420 posts subjected to job evaluation during the period under review, the majority of these jobs (75.8%) were on SMS level.
Table 1: Budget and expenditure summary 2020/21 2019/20 Programme Final Actual (Over)/Under Final Actual Over)/Under Appropria Expenditure Expenditure Appropriation Expenditure Expenditure tion R’000 R’000 Administration 225 927 213 914 R’000 12 013 R’000 244 349 R’000 232 381 R’000 11 968 Policy Development, 33 782 29 431 4 351 34 410 32 083 2 327 Research and Analysis Public Service 59 739 53 058 6 681 73 675 59 120 14 555 Employment and Conditions of Service Government Chief 19 095 17 056 2 039 22 435 21 277 1 158 Information Officer Service Delivery 84 017 77 202 6 815 292 298 287 228 5 070 Support 10 160 Governance of 46 335 39 925 6 410 326 176 322 876 3 300 Public Administration TOTAL 468 895 430 586 38 309 993 343 954 965 38 378 Source: DPSA (2021) 8.1.2 Programme Performance The Department has six programmes, which are as follows: (a) Programme 1: Administration The purpose of the programme is to manage overall strategic and operational functions of the Department which include policy direction; strategic leadership; coordination and facilitation of multilateral and bilateral programmes; integrated planning and programme support; provisioning of financial and human resource management services; security and facilities management; communication and ICT management; coordination of the provisioning of internal legal advice services, as well as , and audit and risk management oversight.
The programme has seven predetermined targets in 2020/21 financial year.

The Department achieved all targets.

This programme reported expenditure of R213.9 million or 94.7 per cent of its 2020/21 available budget of R225.9 million as at the end of the fourth quarter of 2020/21.
The main cost drivers were Corporate Services (R85.8 million), due to the transversal nature of the Department; Office Accommodation (R53.1) and the Ministry (R28.5 million), due to the legislation being developed during the period under review.
The reported expenditure was R12, 016 million or 5.3 per cent less than the projected expenditure of R225.9 million for the period under review due to the following reasons: the underspending of R8.2 million under compensation of employees is due to unfilled funded vacant posts and underspending under goods and services, mainly due to less travelling as a result of travel restrictions as per the lockdown regulations.
The Department submitted the Interim and Annual Financial Statements to the National Treasury and quarterly reports on the implementation of the APP to relevant authorities.

Furthermore, submitted the Draft Public Service Amendment Bill to the Office of the Chief State Law Adviser for pre-certification.

Subsequently, the Bill was gazetted in March 2021.


Consultations were held with the Department of Cooperative Governance on the draft Public Administration Management Amendment Bill, and the Bill was 11 161 developed and gazetted.

The draft Bill seeks to amend the Public Administration Management Act, No.

11 of 2014.

The Department developed regulations on selected areas of the Public Administration Management Act to support the implementation of the Act.
The Department developed progress reports on the implementation of the Internal Audit and Risk Management plans, with a specific focus on the audit of Human Resource, Asset Management, Supply Chain Management, Financial Statements and Information Technology.
(b) Programme 2: Policy, Research and Analysis The purpose of this programme is to research, analyse, monitor and evaluate the formulation, development and review of policies and policy reform through a cogent policy and research agenda and strategy for public administration discourse and reforms, based on both national and international trends, using capacity and functionality assessments; providing Public Service productivity measurement instruments; investigating appropriate and alternative pubic administration delivery models through knowledge management and best practices; managing and evaluating transformation programmes; in order to enhance access to public services through feasibility and continuity studies.
This programme reported actual expenditure of R29.4 million (87.1 per cent) of its 2020/21 budget allocation of R33.7 million as at the end of March 2021.

The expenditure was R4.3 million (12.9 per cent) lower than the programme’s projected expenditure of R33.7 million for the period under review.
The programme set two targets, both of which (100 per cent) were achieved per the following: consultations were held with national and provincial departments on the full implementation of the Organisational Functionality Assessment Tool.

A quarterly report on compliance by national and provincial departments with DPSA policies was produced.
(c) Programme 3: Labour Relations and Human Resource Management The purpose of the programme is to develop, implement and monitor human resources policies and functions, by managing labour relations negotiations, employee relations, discipline and work environment management, designing remuneration and job grading policy 12 162 frameworks; as well as, support the implementation of human resource development and planning strategies, systems and practices.
This programme has spent R53.0 million (88.8 per cent) of its 2020/21 budget allocation of R59.7 million as at the end of March 2021.

This was R6.6 million (11.2 per cent) lower than the projected expenditure of R59.7 million over the period under review.
The Programme set six targets, three (50 per cent) of which were achieved as follows: consultations held with EXCO on the proposals on the improvement of the Performance Management and Development System in February 2021, the Quarterly report produced on compliance by national and provincial departments with DPSA policies and the Programme to improve the management of discipline within the Public Service was developed.
Targets not achieved are: Personnel Expenditure Review could not commence due to budget cuts to departments as a results of Covid-19, the development of the Job Evaluation system could not commence due budget cuts to departments as a results of Covid-19 and guideline for the implementation of proposals on the reduction of selected cost drivers in public administration was not issued.

It could not be achieved within twelve months.


(d) Programme 4: Government’s Chief Information Officer The purpose of this programme is to promote and manage the use of ICT’s as a strategic tool in the design and delivery of citizen-centred services within government, by coordinating and consolidating public service ICT policies, strategies, costs, risk assessments, as well as ICT Governance matters.
This programme spent R17.0 million (89.3 per cent) of its 2020/21 total available budget of R19.0 million as at the end of March 2021.

This translates into spending of R2.0 million (10.7 per cent) lower than anticipated expenditure for the period under review.
The Programme set five targets, four (80 per cent) of which were achieved as follows: the Audit report on the implementation of the National e-Government Strategy was issued to national and provincial departments in March 2021, the Public Service Data Governance Framework was submitted to the Director-General for approval in March 2021, a report with the status and recommendations for improvements on the Public Service Information and Communication Technology infrastructure was developed by March 2021 and the quarterly report on the compliance by national and provincial departments with DPSA policies was produced.
13 163 The target not achieved was about the Information Security Standard document which was referred back to the Branch for amendment and could not be processed to the Minister by the end of the quarter.
(e) Programme 5: Service Delivery Support The purpose of this programme is to manage and facilitate the improvement of service delivery in government by supporting and monitoring Operations Management and Service Delivery Planning; Frontline service delivery, including Service centre oversight; integrated citizen participation through African Peer Review Mechanism (APRM), the Open Government Partnership (OGP), as well as the implementation of community development programme.
This programme reported total expenditure of R77.2 million (91.9 per cent) against an available budget of R84.0 million as at the end of March 2021.

The expenditure was R6.8 million (8.1 per cent) lower than the projected expenditure of R84.0 million for the same period in 2020/21.

The Programme achieved all four (100%) of its annual targets as follows: Batho Pele Revitalization Strategy was submitted to the Director-General in March 2021 for approval.
A Report on the African Peer Review Mechanism (APRM) 2nd Generation Country Review for the period 1 April 2014 to 31 March 2021 was adopted by the National Governing Council of South Africa in March 2021.

The Business Processes Modernisation Programme was developed.

Quarterly report on the compliance by national and provincial departments with DPSA policies was produced.
(f) Programme 6: Governance for Public Administration The Department drives this programme to manage and develop policies, strategies and programmes on Public Service ethics, integrity and leadership; intergovernmental relations; macro organization of the state, including organisational design; strategic planning frameworks; as well as, monitor government intervention programmes and Human Resource information systems.
The programme spent R39.9 million (86.1 per cent) of its available budget of R46.3 million as at the end of March 2021.

The expenditure was R6.4 million (13.8 per cent) lower than the projected spending of R46.3 million.

The Programme set six targets, five (83 per cent) of which were achieved as follows: the guidelines on conducting lifestyle 14 164 audits were issued to national and provincial departments.

The Database on Public Service employees appointed as board members to entities was compiled.
Analyses were conducted on the adherence by designated employees from national and provincial departments to the Financial Disclosure Framework.

Cabinet Memorandum on the career incidents of Heads of Department was developed and submitted for approval.

The Revised outline of the Public Service Job Occupational Dictionary was developed.
The unachieved target was the Directive on further categories of employees in the Public Service to disclose their financial interests was still undergoing intensive consultations internally within the Department.

9.

CENTRE FOR PUBLIC SERVICE INNOVATION The Centre for Public Service Innovation (CPSI) is an entity of the Ministry for the Public Service and Administration established to entrench and drive service delivery innovation across all sectors.
Chapter 3 of the National Development Plan (NDP) states that “Innovation across state, business and social sectors should start to become pervasive”.

The NDP stipulates that innovation should also focus on improved public service delivery and on goods and services aimed at low-income sectors.

The CPSI is bridging the gap between the world of science and technology driven by the National System of Innovation led by the Department of Science and Technology.
The National System of Innovation includes entities such as National Advisory Council on Innovation (NACI), the Innovation Hub and the Technology Innovation Agency (TIA).

The CPSI’s Strategic Plan is aligned to the Government priority outcomes.
Table 2: CPSI 2020/21 expenditure per programme 2020/21 2019/20 Programme Administration Public Sector Innovation TOTAL Source: CPSI (2021) Final Appropriation R’000 Actual Expenditure R’000 (Over)/Under Expenditure R’000 Final Appropriation R’000 Actual Expenditure R’000 Over)/Under Expenditure R’ As can be seen from the table above, expenditure for the period 1 April 2020 to 31 March 2021 amounted to R27.5 million (79.03%) of the final appropriation of R34.8 million for the year.
This translates into under-expenditure of R7 303 million (20.9 per cent).

The Centre managed to achieve six of its eight set targets, which translates into a 75 per cent achievement.

The Centre organises its expenditure under two programmes, namely Programme 1: Administration, and Programme 2: Public Sector Innovation.

During the 2020/21 financial year, the vacancy rate increased to 16.7 percent compared to 13.5 percent in the 2019/20 financial year.
This is the result of five vacant posts at the end of the reporting period, compared to four vacant posts at the end of the 2019/20 financial year.

The MPSA put a moratorium on filling of positions in the CPS until the repositioning of the CPSI processes concluded.

This resulted in five funded vacant posts not being filled during the period under review.

The moratorium also resulted in no interns being absorbed into permanent positions during the last financial year.
the employment equity statistics at the end of the financial year remained at 7.1% in respect of persons with disabilities and 60% in respect of women at SMS level and 11% of youth which is consistent with the previous financial year.

The Executive Director’s post has been vacant since 1 October 2018.
The responsibilities of the post have been assigned to an employee seconded from the DPSA to the CPSI from October 2018 to June 2019 and another secondment from the Presidency from September 2019 to February 2020.

The responsibilities of the post were assigned to internal capacity during the periods June 2019 to September 2019 and February 2020 onwards.

9.1 Programme 1: Administration This programme provides strategic leadership, overall management and support to the organisation.
The programme achieved both its targets set for the financial year as follows; four quarterly financial and non-financial reports submitted to the Minister, DPSA, National Treasury and Department of Planning, Monitoring and Evaluation (DPME) as per required timeframes.

All (100%) of external audit recommendations were implemented.

9.2 Programme 2: Public Sector Innovation 16 166 This programme drives service delivery innovation in the public sector in line with Government priorities.
The programme set six targets, four (66 per cent) of which were achieved as follows; revised Pocket Guide to Innovation in the South African Public Sector disseminated.

Six knowledge platforms hosted to unearth, demonstrate, share, encourage and award innovation in the public sector.

Volume 10 of “Ideas that Work”: The South African Public Sector Innovation Journal published.

The CPSI participated in the Southern African Development Community (SADC) or International innovation programmes.
The following targets were not met include the delivery of the Standing Boxes was not finalised by the end of the financial year due to delays in manufacturing.

There was no new solution was taken into a piloting phase due to the longer than anticipated duration of the piloting of the two projects from the previous performance cycles, which demanded the full capacity of the unit.

10.
10.

AUDITOR-GENERAL OUTCOMES 10.1 Audit Opinion The Auditor-General audited the financial statements of the Department of Public Service and Administration set out on pages 114 to 219 which comprise the appropriation statement, statement of financial position as at 31 March 2021.

The Department’s financial performance and cash flows for the 2020/21 were in accordance with the Modified Cash Standard prescribed by the National Treasury and the requirements of the Public Finance Management Act (PFMA).
The Auditor-General performed procedure to determine whether the reported performance information was properly presented and whether performance was consistent with the approved performance planning documents.

The AG performed further procedures to determine whether the measures and related targets were measurable and relevant, assessed the liability of the reported performance information to determine whether its valid, accurate and complete.
The AG did not identify any material findings on the usefulness and reliability of the reported performance information.

17 167 10.

2 Compliance with legislation In accordance with the PAA and the general notice issued in terms thereof, Auditor-General have a responsibility to report material findings on the compliance of the Department with specific matters in key legislation.

Auditor-General performed procedures to identity findings but not to gather evidence to express assurance.
10.3 Expenditure management The majority of the irregular expenditure was caused by employees who continued to work after their contracts had expired.

10.4 Internal control Management did not perform sufficient and timely reviews of the annual financial statements to ensure compliance and proper interpretation of the financial reporting framework, which led to material misstatements being identified during the audit.

11.
11.

OBSERVATIONS AND KEY FINDINGS The Committee made the following observations: 11.1 The Committee notes and commends the Department of Public Service and Administration and Centre for Public Service Innovation for receiving unqualified audit outcomes for 2020/21 financial year.

The Department had managed to achieve 83% of its planned in the 2020/21 Annual Performance Plan especially under the year characterised by COVID-19 pandemic.
11.2 The Committee notes the progress made thus far with amendment of the Public Service Act (PSA) that broadens its scope by incorporating the role of the Director-General in the Presidency to support the President, furthermore to provide for a mechanism to deal with recovery of overpayments of remuneration and benefits and to clarify the role of the Public Service.
11.3 The Committee notes the progress made thus far with amendment of the Public Administration Management Act (PAMA), which intends to accelerate implementation and improve service delivery.

The PAMA also seeks to eliminate fragmented approach to development and strengthen coordination 18 168 across the public sector.

The Committee notes that the Bargaining Council has given the green light to the amendment and the Department will take the Bill to NEDLAC.
The Department was optimistic of tabling the Bill in the 2021/22 financial year.

11.4 The Committee further notes responses to the BRRR 2019/20 financial year concerning the Public Administration Management Act regulations, whereby both the Ministers of Finance and of Cooperative Governance and Traditional Affairs, as well as SALGA have indicated concurrence.
However, the Committee is concerned about the delay in obtaining SALGA concurrence, which might take more than six months whilst waiting for the local government councils to elect new SALGA chairperson.

The Committee will closely monitor the development to ensure that PAMA regulations are implemented.

11.5 The Committee notes progress thus far pertaining to the development of a Guide to implement lifestyle audits aimed at preventing and detecting fraud and corruption in the public service.
The Committee notes that the determination of lifestyles is the prerogative of Accounting Officers as enshrined in the Public Service Regulations, 2016, regulation 22.

The Committee is looking forward to the full implementation of lifestyle audits across all government departments with clear time frames.
11.6 The Committee further notes the efforts by the Department in improving the management of discipline within the public service, in order to hasten the resolution of disciplinary cases and consequence management through disciplinary cases.

The Committee took into consideration an admission by the Department that it has no legal basis to intervene in the disciplinary cases in the various government departments.
However, the Committee took note of reviewing time frames of complex disciplinary cases and decentralisation system.

11.7 The Committee urges the Department to swiftly conclude the development of “Career incidents of Heads of Department” in order to ensure clear guidance in terms of administrative processes and management of career incidents in a meritocratic manner.
19 169 11.8 The Committee was concerned about the inability of the Department to meet crucial target on the Public Service Information Security Standard, which is aimed at providing evolving model for maintaining and improving the information security in the public service.

11.9 Digital transformation to new technologies to transform Business Process Modernisation by replacing manual or non-digital processes with digital technologies is becoming the norm.
The Committee observes that the Department is maximising its efforts of digitising government business model with an aim of improving efficiency and saving time to render services.

11.10 The Committee further commends the Department for not experiencing unauthorised, irregular, fruitless and wasteful expenditure in 2019/20 financial year.
The Committee wishes to see the Department and the CPSI maintaining a similar trend on unauthorised, irregular, fruitless and wasteful expenditure in the upcoming financial years.

11.11 In an effort to reduce the wage bill, the Committee notes that the Department was unable to achieve a target on the Personnel Expenditure Review (PER) due to budget cuts to fund remedial activities on COVID-19 pandemic.
The PER will be used as an instrument to manage the wage bill, which includes the review of Occupation Specific Dispensation (OSD) in the public service.

11.12 The Committee was disappointed with the Department incurring irregular expenditure in relation to salaries paid to former employees after the employment contracts ended.

The Committee would like to see the Department strengthening such system and human error and take the lead in ensuring PERSAL system remunerates employees offering their services.
11.13 In light of the Auditor-General’s audit findings, the Department and the Centre for Public Service Innovation were required to develop an action plan to address matters raised to avoid recurrence of similar issues in the 2021/22 financial year.

This is a matter that the Committee will look into, moving forward.

20 170 Centre for Public Service Innovation 11.14 The Committee notes the efficacy of the innovation projects and outcomes within the Centre and the public service.
11.15 The Committee notes lifting of moratorium on the filling of posts at the Centre for Public Service Innovation.

However, the Committee has emphasised that the CPSI has to fill critical posts.

12.

RECOMMENDATIONS The following recommendations are proposed: DPSA Legislative and governance matter 12.1 The Department should speed up legislative reform, especially concerning the Public Administration Management Act of 2014 in order to ensure that operational systems are updated and strengthened.
12.2 The Department should fast-track the finalisation of amendments to the Public Service Act of 1994 aimed at broadening its scope by incorporating the role of the Director-General in the Presidency to support the President, furthermore to provide for a mechanism to deal with recovery of overpayments of remuneration and benefits.

The Department should provide progress report on the finalisation of the amendment bi-annually to the Committee.
Administrative matters 12.3 The Department of Public Service and Administration should continue in its effort to reduce the wage bill by regularly consulting with organised labour when major decisions affecting the conditions of service in the public service are made.

The Department should speed up the Personnel Expenditure Review in the 2021/22 financial year with the aim of managing the wage bill.
21 171 12.4 The Department should swiftly finalise the Guide to implementing lifestyle audits and the training of officials thereon, aimed at preventing and detecting fraud and corruption in the public service.

In the implementation of the Guide, the Department should provide timeframes to all accounting officers as part of the rollout strategy in the public service.
12.5 The Department should devise a strategy to address challenges regarding internal controls as reported by the Auditor-General, especially regarding management of contracts, to ensure that certain employees do not continue to work after their contracts should have expired.
12.6 The Department should revisit the policy on decentralised discipline management in the public service to avoid the tedious and sometimes futile process of reminding other departments to take care of misconduct cases not finalised within the regulated period.

Since the Department is dealing with amendments to relevant legislation, this is the opportune time to amend legislation in favour of discipline management being centralised within the Department.
12.7 The issue of discipline management centres around finding willing disciplinary and mediation committee chairpersons, which takes time and impacts on finalising disciplinary action within regulated time.

Perhaps the Department should consider making it part of job description for all levels of service from which mediation officers and chairpersons of disciplinary cases are possibly appointed.
This is to ensure that whoever is nominated to these ad hoc arrangements does not unreasonably refuse such nomination, and that this forms part of their employment and performance contract.

12.8 The Committee urges the Department to prioritise delivery on the Public Service Information Security Standard target to avoid government institutions becoming victims of cyber-attacks, especially in the era where work-from-home using technology is still with us.
CPSI 22 172 12.9 The Department and the Ministry have to speed up the permanent appointment of the Executive Director of the Centre for Public Service Innovation.

12.10 The Centre for Public Service Innovation should ensure that targeted piloting of innovations takes place as planned.

12.11 The Centre should still deliver diligently on its mandate.

Annually, there must be new innovation forthcoming from the Centre.

13.
13.

CONCLUSION The Department of Public Service and Administration has in the 2020/21 financial year continued to implement and coordinate interventions aimed at achieving an efficient, effective and development-oriented public service, which is an essential element of a capable and developmental state.

The Department and the Entity underspent their allocated budgets.

However, the challenge of shifting budget within and between programmes was realised after it had improved over the years.
The Department had underspent on most programmes because some targets were not achieved, as much as the unachieved targets were not many.

Accountability within the Department has improved with responsible leadership.

There must, however, be proper internal controls regarding management of contracts of employees, to avoid unnecessary expenditure.

The Centre did not have new innovations in the year under review.

This situation must improve going forward Report to be considered 23 173 5.
BUDGETARY REVIEW AND RECOMMENDATIONS REPORT (BRRR): DEPARTMENT OF PLANNING, MONITORING AND EVALUATION (DPME), AND BRAND SOUTH AFRICA 2020/21 FINANCIAL YEAR, DATED 24 NOVEMBER 2021 1.

BACKGROUND The Portfolio Committee on Public Service and Administration (hereinafter referred to as the Portfolio Committee) having considered the directive of the National Assembly as mandated by Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.
9 of 2009 to consider and report on the Annual Reports of the Department of Planning, Monitoring and Evaluation (DPME) and Brand South Africa tabled by the Minister of Planning, Monitoring and Evaluation as follows: 2.

INTRODUCTION Parliament derives its mandate from the Constitution of the Republic of South Africa.

The strategic objectives of the Portfolio Committee are informed by five strategic goals of Parliament.
The functions of the Portfolio Committee on Public Service and Administration as well as Monitoring and Evaluation are as follows: • Participating and providing strategic direction in the development of the legislation and thereafter passing the laws.

• Conducting oversight over the Executive to ensure accountability to Parliament towards achieving an effective, efficient, developmental and professional public service.
• Conducting public participation and engaging citizens regularly, with the aim to strengthen service delivery; oversee and review all matters of public interest relating to the public sector.

• Monitoring the financial and non-financial aspects of departments and its entities and ensuring regular reporting to the Committee, within the scope of accountability and transparency.

• Supporting and ensuring implementation of the Public Service Commission (PSC) recommendations in the entire public service.
• Participating in international treaties which impact on the work of the Committee.

1 174 On November 11, 2021, the Committee considered the Annual Report for 2020/21 financial year of the Department of Planning Monitoring and Evaluation and Brand South Africa for the Budgetary Review and Recommendations reports.

3.

PURPOSE OF THE BUDGETARY REVIEW AND RECOMMENDATIONS REPORT In terms of Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.
9 of 2009 the National Assembly, through its Committees, must annually compile Budgetary Review and Recommendations reports (BRRR) that assess service delivery and financial performance of departments and may make recommendations on forward use of resources.

The BRRR is also a source document for the Committees on Appropriations when considering and making recommendations on the Medium Term Budget.
Moreover, the Money Bills Amendment Procedures and Related Matters Act, section 5 (3) highlights focus areas on the budgetary review and recommendation report as: • Providing an assessment of the department’s service delivery performance given available resources.

• Providing an assessment of the effectiveness and efficiency of the departments’ use and forward allocation of available resources; and • Including recommendations on the forward use of resources.
3.1 Method The Portfolio Committee on Public Service and Administration compiled the 2018/19 BRRR using the following documents: • The National Development Plan: Vision for 2030.

• Medium Term Strategic Framework 2019-2024.

• • • • • State of the Nation Address 2020.

Strategic Plans of the DPME and Brand SA.

National Treasury (2021) 4th Quarter Expenditure Report 2020/21 Financial Year, Pretoria.

Annual Performance Plans of the DPME and Brand South Africa 2020/21.
Annual Report of the DPME and Brand South Africa 2020/21.

2 175 • • Auditor-General South Africa’s outcomes of audit findings 2020/21.

The Portfolio Committee also met with the leadership of the Department and Brand South Africa.

4.

NATIONAL DEVELOPMENT PLAN VISION 2030 The Department of Planning, Monitoring and Evaluation supports the National Development Plan’s objective of an accountable and transparent government.
The Department’s focus is on strengthening accountability and improving coordination, and it works with the National Planning Commission to facilitate and monitor the implementation of the National Development Plan.

The Department is responsible for mainstreaming the National Development Plan into the work of Government by drafting the Medium Term Strategic Framework to guide Government’s programme.
The strategic framework includes 14 outcomes, which form the basis of the new performance agreements between the President and individual Members of Cabinet.

5.

MANDATE OF THE DEPARTMENT OF PLANNING, MONITORING AND EVALUATION The mandate of the Department of Planning, Monitoring and Evaluation is derived from section 85(2)(c) of the Constitution, which enables the President to exercise authority over Members of Cabinet by coordinating the functions of state departments and administration.
The primary aim of the Department is to improve government service delivery through planning, performance monitoring and evaluations.

The DPME has the following key mandate: • Facilitating the development of plans/delivery agreements for cross-cutting priorities or outcomes of Government, and monitor and evaluate the implementation of these plans/delivery agreements.
• Putting in place and managing guiding frameworks for strategic planning and annual performance planning in national and provincial departments.

• Monitoring the performance of individual national and provincial government departments and municipalities.

• Monitoring frontline service delivery.

• Managing the Presidential Hotline.

• Carrying out evaluations.

3 176 • Promoting good monitoring and evaluation practices in Government.
5.1 Department’s priorities over the medium-term The priorities for the 2020/21 Annual Performance Plan of the Department of Planning, Monitoring and Evaluation are informed by the National Development Plan as translated in the Medium Term Strategic Framework (MTSF) for 2019-2024.
The DPME has, through its outcomes monitoring and evaluation work, developed a number of monitoring and evaluation tools to fulfil the functions below: • Facilitating the development of plans or delivery agreements for the cross- cutting priorities or outcomes of Government.

• Assessing departmental Strategic Plans and APPs to determine and enhance their alignment with the NDP, MTSF, Delivery Agreements and the budget.

• Monitoring and evaluating the implementation of service delivery agreements.
• Monitoring the performance of individual national and provincial government departments and municipalities.

• Monitoring frontline service delivery across the public service.

• Managing the Presidential Hotline.

• Carrying out evaluations.

• Promoting good monitoring and evaluation practices in Government.

• Providing support to service delivery institutions to address blockages in delivery.

6.
6.

DEPARTMENT’S PROGRAMME PERFORMANCE 6.1 Department of Planning, Monitoring and Evaluation 6.1.1 Budget Allocated and Expenditure 2020/21 The budget appropriated to the Department of Planning, Monitoring and Evaluation for the 2020/21 financial year was R399 974 million.

Expenditure for the department was R387 139 million for all the programmes which is an estimated 96.8% of budget spent.

The variance was R12 835.


The Department’s under-expenditure was as a result of payments of goods and services due to underspending on travel, advertising and training due to the COVID-19 pandemic, as well as the delays in the drafting of the Planning Bill.

4 177 In 2020/21 financial year, the Department had no rollovers requested.

The Department recorded no fruitless and wasteful expenditure.
Two hundred and seventy-six thousand rand (R276 000) of possible fruitless and wasteful expenditure was still under investigation as at 31 March 2021 financial year.

The Department recorded no irregular expenditure in the 2020/21 financial year, of which none was condoned.

A total of R759 000 of possible irregular expenditure was under investigation as at 31 March 2021.

The Department did not incur any unauthorised expenditure.
The Department’s 3-year Human Resource Plan which is aligned to the new organisational structure was approved and is being implemented and monitored.

The Department filled 37 posts in 2020/21 financial year and managed to reduce the vacancy rate from 10.5% in March 2020 to 4.1% in March 2021.

As much as the Department managed to reduce vacancy rate, it is still experiencing a high staff turnover of 11.9%.

The Department managed to appoint 8.6% interns against target of 5%.
In achieving a 50% gender representation of females in SMS and increasing the percentage of people with disabilities employed in the Department, female representation was at 58.3% (8.3 above the Employment Equity target) and 51.7% female occupying SMS positions.

This has to be a commendable achievement to have reached this target of 51.7% since the establishment of the department.
Achieving government’s acceptable percentage on disability representation at the SMS levels remains a challenge despite efforts to attract disabled candidates.

The Department awarded bursaries to nine employees.

Table 1: Appropriation per programme (R’000) Programme R'000 Final Appropriation Actual Expenditure Variance Shifting of funds Virement 1.

Administration 160 070 156 528 3 542 - 1 291 5 178 66 366 64 741 1 625 National 2.

Coordination Planning Sector Monitoring 3.

Services 58 625 57 416 4.


Public Sector Monitoring and Capacity Development 79 231 5.
Evaluation, Evidence and Knowledge Systems 35 682 75 901 32 553 Total 399 974 387 139 12 835 Source: DPME Annual Report 2020/21 1 209 3 330 3 129 - - - - - 1 253 (1 291) (1 253) - - 6.1.2 Programme Performance The Department has six programmes in 2020/21 financial year organised as follows: 6.1.2.1 Programme 1: Administration The main objective of the programme is to provide strategic leadership, management, administrative, financial and human resource services to enable the Department to achieve its strategic and operational goals.
The Programme’s key focus is to implement revised organisational structure and recruitment of key personnel, improve the quality of performance information, maintain good financial management practices to sustain clean audit outcomes and strengthen communication around the National Development Plan.

Programme 1 spent R156.5 million of the allocated budget of R160.1 million, which is an estimation of 97.8% in 2020/21 financial year.
Programme 1 under-spend on sub-programme: Corporate Services and Financial Administration with R122.3 million, Departmental Management with R10.1 million and Ministry with R23.8 million.

The Ministry was allocated an increase of the budget as compared with 2019/20 financial year.

The total amount of under expenditure was R3.542 million.

The programme had eleven (11) predetermined targets.

Of total targets, the Department achieved nine (09) targets and two (2) were not achieved.
The average vacancy rate was at 4.1% which is below 10% acceptable rate in the public service.

The Department drastically reduced the vacancy rate from 11.4% in 2019/20 financial year to 4.1%.

Meaning the recruitment plan developed to fast track the appointment process in the past financial year had produced results.

The Department appointed interns to expose graduates to the workplace and to generate a pool of candidates for filling of entry level posts.
The Department reviewed the strategic plan, but did not change it and submitted the Annual Performance Plan to the National Treasury timeously.

The Department produced four quarterly 6 179 reports against the APP and were submitted to the Executive Authority and National Treasury within 30 days at the end of the quarter.

An annual communication plan was produced and achieved 100% targets.
Section (1) (f) of the Public Finance Management Act, states that, “accounting officer of a department must settle all contractual obligations and pay all money owing, including intergovernmental claims, within the prescribed or agreed period’.

In view of the above, the Department achieved 100% of the payment of valid invoices within 30 days.
The Department achieved 99% Senior Management Service (SMS) disclosing financial interest in terms of Chapter 3, C.1 of the Public Service Regulations (PSR) required to disclose to their respective Executive Authorities (EAs), particulars of all their registrable interests (e.g.

companies and properties) not later than 30 April each year, in respect of the period 01 April of the previous year to 31 March of the current year.
6.1.2.2 Programme 2: National Planning Commission The purpose of the Programme is to develop, implement planning frameworks, and facilitate the alignment of the planning and budgeting functions across government and in the Department.
The key objective of this Programme is to ensure the achievement of the NDP’s objectives by 2030, through developing an annual budget prioritisation framework, embedding the national spatial development framework in the strategic and annual performance plans of national and provincial departments over the medium term.
The Programme further intends to coordinate planning functions across government by assessing the alignment of the strategic and annual performance plans of national and provincial departments and public entities with Government’s 2019-2024 Medium-Term Strategic Framework annually.
In addition, the Programme has to assess alignment of provincial growth and development plans with local government’s Integrated Development Plans and, in turn, with Government’s 2019-2024 Medium-Term Strategic Framework annually.

Programme 2 spent R64.7 million of the allocated budget of R66.4 million, which is an estimated 97.5% in the 2020/21 financial year.

The Department had twelve (12) predetermined targets by March 2021.
Four of the targets were removed from the APP in the 2nd quarter of the financial year during the re-tabling which took place in July 2020 as a result of budget cuts occasioned by the budget reprioritisation in response to the COVID-19 pandemic.

Subsequently, one target was added in response to the need to review the MTSF 2019-2024.

7 180 The revised APP targets under the programme were therefore reduced to nine (9).

Of all targets, five (05) were achieved and four (4) not achieved.
The Department had not achieved targets with regard to the Integrated Bill, the National Spatial Development Framework Implementation Charter and guidelines for the development and implementation of the MTSF.

The Department developed concept notes on the update and reprioritisation guideline of the MTSF for 2019-2024.

However, the Department has to provide detailed information on the impact of the reprioritisation of the MTSF targets to the economy.
Furthermore, guidelines for quarterly performance reporting in both the national and provincial departments including Offices of the Premier were issued.

The Department has to indicate whether amendments to the guidelines for quarterly performance reporting have been effected.

This will assist in determining whether there are amendments made in the quarterly performance reporting.
The Department targeted to produce 42 assessment reports on the received strategic plans and annual performance plans from national and provincial departments.

The Department produced over 51 assessment reports on the strategic plans and annual performance plans.

Based on the assessment reports, the Department has consolidated and produced assessment reports for seven provinces.

A guideline on the Geo-spatial referencing of the projects was produced in the year under review.
In terms of the development of the Integrated Planning Framework Bill, the Department produced analysis reports with regard to the Bill.

However, as highlighted above, the Department was unable to submit the draft Bill to Cabinet.

The Department developed 2021 Budget Prioritisation Framework.

6.1.2.3 Programme 3: Sector Monitoring Services The purpose of the Programme is to ensure government policy coherence.
The Programme develops, facilitates, supports and monitors the implementation of sector plans and intervention strategies.

The main objectives of the programme are to ensure the effective implementation of government’s 2019-2024 Medium-Term Strategic Framework by monitoring the achievement of targets in priorities 1 to 5 and priority 7 and reporting on progress to Cabinet twice in a year.
Furthermore, it monitors and reports on the achievement of targets in the performance agreements between the President and Ministers annually, and support, where and when required for the development and implementation of special intervention programmes.

Programme 3 spent R57.4 million of the allocated budget of R58.6 million, which is an estimated at 97.9% in the 2020/21 financial year.
The Department had ten (10) predetermined 8 181 targets, six (6) targets were achieved and two (2) were not achieved and two (2) targets were discontinued due to the government reprioritisation of the budget across the departments.

Among the discontinued targets include the signing of performance agreements for the Ministers and Deputy Ministers and the electronic monitoring and reporting tool.

The targets were rescheduled for the 2021/22 financial year.
In the past years, the Department had reviewed and approved guidelines for the Programme of Action Monitoring System.

The revised POA guidelines were utilised in the development of quarterly MTSF progress reports used at the Implementation Forums.

Previously, the Department used to produce 24 MTSF Outcomes reports to be presented to Cabinet.

In the 2020/21 financial year, the Department produced only one MTSF report due to the impact of COVID-19.
The Programme planned to spend budget on monitoring the quality of management through the Local Government Management Improvement Model (LGMIM) and to produce improvements plans.

The Department produced 22 assessment reports and four improvement plans.

Moreover, the Department produced 100% of the briefing notes on Cabinet memorandum and 30 briefing notes on COVID-19 government interventions.
The Department is responsible to coordinate and monitor government departments in implementing projects and fast-tracking services through Operation Phakisa.

The Department produced two (2) guidelines on the Operation Phakisa and MTSF guidelines.

Further two (2) integrated reports and annual reports were produced.
6.1.2.4 Programme 4: Public Sector Monitoring and Capacity Development The purpose of the Programme is to support the implementation of the Medium-Term Strategic Framework by monitoring and improving the capacity of state institutions to develop and implement plans, and provide services.
The main objective of the Programme is to strengthen state governance, efficiency, effectiveness and equity through: monitoring the achievement of targets related to Priority 6 of Government’s 2019-2024 Medium-Term Strategic Framework, and reporting on progress to Cabinet twice in a year.
Furthermore, the programme planned to develop and implement the new performance and capabilities analytical framework by March 2021 by ensuring the alignment of the performance agreements of Heads of Department with Government’s 2019-2024 Medium-Term Strategic Framework and supporting assessments conducted on Heads of Department annually.
9 182 Additionally, the Programme monitors service delivery through regular frontline monitoring visits, citizen-based monitoring and the Presidential Hotline, and reporting thereon.

Programme 4 spent R75.9 million of the allocated budget of R79.2 million, which is an estimate 95.8% of the 2020/21 financial year.

The programme had eleven (11) predetermined targets.

Of total targets, five (5) targets were achieved and six (6) not achieved.
Targets removed from the original APP include two capability monitoring reports, status report on the implementation of the Performance Monitoring Development System and one high risk State-Owned Enterprises (SOEs) support.

During the year under review, the Department was unable to produce oversight monitoring implementation reports on District Development Model (DDM).

This was largely due to the impact of the COVID-19 pandemic.
The target on DDM was replaced with monitoring activities of COVID-19 pandemic.

The Department developed a framework for COVID-19 monitoring.

The Department was unable to achieve target on the integrated report on the state of State-Owned Enterprises (SOEs).

The SOEs Oversight and Monitoring Framework was delayed for approval by April 2021 due to extension of consultation process as a result of COVID-19 restrictions.
With regard to the monitoring of the State Owned Enterprises, the President has established the Presidential State-Owned Enterprises Council (PSE) to support the repositioning of state- owned enterprises.

The Department compiled a report on the performance agreements of the Heads of Department in both national and provincial departments, however, it was unable to submit the report to the Department of Public Service and Administration due to an unsigned letter.
A report on the evaluation of the HODs performance agreements was not developed due to extension of the regulated period.

The Department has conducted two oversight visits on monitoring and produced reports on the implementation of COVID-19 response through the District Development Model.

The Department developed and implemented the model for Government Priority one (1) of the Sixth Administration, which is “A capable, ethical and developmental state”.
During the year under review, a report was produced on Government Priority one of the Sixth Administration.

6.1.2.5 Programme 5: Evaluation, Evidence and Knowledge Systems The purpose of the Programme is to coordinate and support the generation, collation, accessibility and timely use of quality evidence to support performance monitoring and evaluation across government.
The main objective of the programme is to support the planning 10 183 and monitoring roles of the Department by developing and implementing the national evaluation plan annually, conducting research and evaluations in key policy areas as identified annually, and producing relevant evidence reports.

It also improves knowledge management in the Department through the development and implementation of a departmental knowledge and evidence hub.
Programme 5 spent R32.5 million of the allocated budget of R35.7 million, which is an estimated 91.2% of 2020/21 financial year.

The programme had eleven (11) predetermined targets, which were revised down to five (5) in the revised APP for the financial year.

Four (4) targets were fully achieved and one (1) was not achieved.

The Department produced evidence plan for the National Evaluation Policy Framework and National Evaluation Plan.
Furthermore, it produced one integrated evidence report on the Medium Term Strategic Framework and country report on COVID-19 pandemic.

The Department produced technical evidence support intervention to government institutions.

7.

BRAND SOUTH AFRICA 7.1 Mandate of Brand South Africa Brand South Africa (BSA) was established as a trust in 2002 and gazetted as a schedule 3A public entity in accordance with the PFMA No.1 of 1999.
Its purpose is to develop and implement a proactive and coordinated international marketing and communications strategy for South Africa; to contribute to job creation and poverty reduction; and to attract inward investment, trade and tourism.

BSA aims to make an indirect contribution to economic growth, job creation, poverty alleviation and social cohesion by encouraging local and foreign investment, tourism and trade through the promotion of the Nation Brand.
BSA develops and implements a proactive and coordinated international marketing and communications strategy for South Africa to contribute to job creation and poverty reduction, and to attract inward investment, trade and tourism.

7.2 Budget allocated and expenditure 7.2.1 Summary and Analysis of Annual Financial Statements 11 184 Budget allocated to Brand South Africa was R179.5 million.

Brand South Africa’s expenditure was R179.5 million in 2020/21 financial year.
In 2014, Brand South Africa organisational structure was reviewed and approved by the Board of Trustees.

The structure review process commenced in 2019, but was put on hold following the reconfiguration process between Brand South Africa and South African Tourism.

Reconfiguration process between the two entities is being facilitated by the Government Communication and Information Systems (GCIS) under the leadership of the Minister in the Presidency.
In terms of gender equity in Brand SA, females represent 63% of the total workforce with males comprising 37% of the remaining employee profile.

Of 63% female representation, 47.37% female are at management level, which is lesser than the acceptable threshold.

There is 5.01% decrease in female representation at management level due to resignation of female members.

Currently individuals with disabilities are not represented within the current staff complement.
The vacancy rate was at 14%, which was above the acceptable norm by the Public Service Regulations.

The contributing factor for high vacancy rate was due to the moratorium on filling permanent appointments.

With regard to 2021/22 financial year, Brand South Africa’s received a budget of R213.4 million for 2021/22.

The budget has declined by approximately 6.39 from financial year 2017/18 to financial year 2021/22.
7.2.2 Programme Performance The BSA has three programmes, which are as follows: 7.2.2.1 Programme 1: Administration The programme seeks to provide management and leadership to develop standardised format of guidelines and templates to strengthen the means of verification and collecting and reporting on performance information.

The programme had sixteen predetermined targets for 2020/21 financial year.

Of total targets, eleven were achieved and five not achieved.
7.2.2.2 Programme 2: Brand marketing and reputation management The programme seeks to develop and articulate a Nation Brand identity to advance South Africa’s long-term reputation and global competitiveness.
This includes a focus to 12 185 research and monitor sentiment and performance of the National Brand, to analyse trends and provide insights to inform decision making and communication; and then to both proactively and reactively communicate the country’s value proposition, values and highlight progress being made.

Programme 2 had seventeen (17) predetermined targets in the 2020/21 financial year.

Of seventeen (17) targets, 15 (81%) were achieved and 2 (19%) targets were not achieved.
Brand South Africa had under this quarter repurposed existing content and material to support the call for South Africa to adhere to regulations put in place to curb the COVID- 19 pandemic.

Brand South Africa has an ongoing collaboration with the Loeries Advertising awards aimed at ensuring that the National Brand features during the period under review.

Moreover, Brand SA showcases innovation by South African entrepreneurs with the focus on interior decoration and art.
5.2.2.3 Programme 3: Stakeholder relationships The programme seeks to build and leverage collaborative partnership, to participate, to integrate and coordinate efforts and approaches to market the Nation Brand identity and promote the Nation’s value proposition and to interface meaningfully with stakeholders who drive or influence the Nation Brand and its reputation.

Programme 3 had 9 predetermined targets in the 2020/21 financial year.
Of 9 targets, 7 (80%) were achieved and 2 (20%) targets were not achieved.

Under this programme, Brand South Africa collaborated with the Department of Sports, Arts, and culture as well as Constitution Hill to host Play Your Part Africa live Stream Concert.

Brand SA has conducted most of its engagements through virtual platforms due to COVID-19 pandemic.

Over 1000 face masks branded with the South African flag masks were produced and distributed to the community of Diepsloot.
Brand SA participated in numerous projects across Metropolitan Municipalities such as “A Girl Child program”.

8.

AUDITOR-GENERAL OUTCOMES 8.1 Auditor General’s Report 13 186 The Auditor-General (AG) have audited the financial statements of the Department of Planning, Monitoring and Evaluation comprising of appropriation statement, the statement of financial position as at 31 March 2021.
The financial statements are in accordance with Modified Cash Standards prescribed by National Treasury and the requirements of the Public Finance Management Act (PFMA).

8.1.1 Predetermined objectives The Auditor-General did not identify any material findings on the usefulness and reliability of the reported performance information for Programmes: Public Sector Monitoring and Capacity Development.
8.1.2 Achievement of planned targets The AG referred to the annual performance report on page (s) 31 to 65 for information on the achievement of planned targets for the year under review and explanations provided for the under/over achievement of number of targets.

8.1.3 Adjustment of material misstatements The AG identified material misstatements in the annual performance report submitted for auditing on the reported information.
These material misstatements were on the reported performance information of Programme 4: Public Sector Monitoring and Capacity Development.

The management of the department subsequently corrected the misstatements.

The AG did not identify any material findings on the usefulness and reliability of the reported performance information.
8.1.4 Compliance with legislation The AG performed procedures to obtain evidence that the Department of Planning, Monitoring and Evaluation had complied with applicable legislation regarding financial matters, financial management and other related matters.

The AG did not identify any instances of material non- compliance with specific matters in key legislation.
8.1.5 Internal Control 14 187 Internal control in the department were considered to be relevant to AG audit of the financial statements, reported performance information and compliance with applicable legislation, however, the AG’s objective was not to express any form of assurance on it.

The AG did not identify any significant deficiencies in internal control.

9.
9.

OBSERVATIONS AND KEY FINDINGS The Committee made the following observations and findings: The Department 9.1 The Portfolio Committee notes the Department of Planning, Monitoring and Evaluation (DPME) for achieving the eighth clean audit in consecutive years, as much as it achieved 81% of its set targets in the 2020/21 financial year.

9.2 The Committee emphasised the importance of the integrated MTSF Monitoring and Reporting System to track progress and support implementation.
The Department has to closely monitor the implementation of the NDP across government, through the monitoring of the detailed actions, indicators and targets as this will assist in measuring overall impact of the achievements on society as the country gets closer to 2030.

9.3 Furthermore, the Committee notes and compliments the Department for achieving 51% of women occupying senior management positions, in the history of the department.
9.4 The Committee takes note of the Department modernising the Presidential Hotline to make it more accessible and easier to use.

The process of integrating new platforms to the traditional email and telephone system of the Hotline has commenced.

The Department piloted the integration of a Mobile App and a USSD code as a platform to the Presidential Hotline precisely to give citizens options with government.
9.5 The Committee takes note of the Department commencing with the development of the Centralised Data Management and Analytical System (CDMAS).

The system is aimed at simplifying the submission of performance information by 15 188 departments to the DPME, improving knowledge management and the production and dissemination of performance reports.

The first module or prototype of the CDMAS to commence during 2021/22 financial year.
9.6 The finalisation of the Integrated Planning Framework Bill remains critical in strengthening coordination and coherence in government.

The Committee notes with concern that in the Annual Report 2020/21 financial year, the Bill had not been drafted.

It is over four years this Bill had been postponed.

This Bill will serve as a panacea in resolving issues of lack of coordination and coherence in government planning, decision making and misalignment of strategic plans and budget allocation.
9.7 The Committee was concerned about delays in developing an Integrated report on the state of State Owned Enterprises (SOEs) and framework on monitoring the SOE’s, and Development Finance Institutions.

The policy measure was proposed by the President during the State of the Nation Address (SONA) to strengthen efforts to monitor all SOE’s and state institutions.
9.8 The Committee was concerned that a target to sign performance by Ministers and Deputy Ministers was removed due to austerity measures imposed by the pandemic.

The core mandate of the Department is to ensure performance of Cabinet to realise the goals of the National Development Plan and Government’s Programme of Action carried through Government Priorities.
Brand South Africa 9.9 In view of the reconfiguration process between Brand South Africa and South Africa Tourism, the Minister together with the Board of Trustees have to provide a detailed update on developments concerning the merger of the abovementioned institutions.

9.10 Brand SA has a high vacancy rate more particularly in senior management as a result of moratorium on filling of posts due to the merger.
Both Ministers of DPME and Tourism have to speed up the process of concluding the reconfiguration 16 189 process so that it becomes clear whether there will be a merger or not between two institutions in order to begin to fill vacancies in senior management.

9.11 With the impact of COVID-19 pandemic on the economy, Brand South Africa has to continue to market the country to the international world in order to attract investors to open business opportunities, which will ultimately create jobs.
10 RECOMMENDATIONS The Committee recommends the following: The Department 10.1 The Department should swiftly finalise the Integrated Development Framework Bill after having incorporated best practices and lessons learned from the District Development Plan/Model.

The Department should table the Bill before the term of the sixth Parliament.

Delays in this regard have an impact on service delivery and Government’s Programme of Action.
10.2 The Department should speed up the process of finalising the revised Medium- Term Strategic Framework 2019-24, as impacted by COVID-19 pandemic.

Revised MTSF should be published on the Department’s website for members of the public to access the documents for consumption.

10.3 The Department must strengthen its capacity to ensure integrated MTSF Monitoring and Reporting System to track progress and support implementation for effective monitoring of departments towards performance on the NDP.
10.4 The Department must develop capacity to robustly analyse the linkage of the Medium-Term Strategic Framework with departments’ strategic plans and annual performance plans with the aim of addressing fragmentations to planning and budgeting.

10.5 The Department should under no circumstances remove the target for Ministers and Deputy Ministers to sign performance agreements.

The President cannot hold 17 190 them to anything without a signed performance agreement.
This is the core mandate of the Department under which it is able to monitor other departments.

Brand South Africa 10.6 Brand South Africa and Tourism SA should move with speed to conclude the possibilities of merging the two institutions.

Both Ministers of the Department of Planning, Monitoring and Evaluation and the one of Tourism should brief the Committee on the developments regarding the possible merger by June 2022.
10.7 In the process of uncertainty, Brand SA should be allowed to fill critical positions on short term contract to ensure stability and accelerate performance of the organisation.

In filling critical positions, people with disabilities should be prioritised since the organisation currently does not have representation of people with disabilities.
10.8 Brand South Africa should address and strengthen all areas identified in the Auditor General’s audit outcomes and report on progress to the Committee by June 2022.

10.9 Brand South Africa should strengthen its approach or strategy to market the National Brand to the international markets by covering a wide spectrum on positive developments happening in the country and report to the Committee by June 2022.
For the Portfolio Committee 10.10 The Committee strongly consider paying a visit to the Presidential Hotline during its oversight period to experience the new developments as reported by the Department.

11 CONCLUSION The Portfolio Committee commends the Department of Planning, Monitoring and Evaluation for achieving clean audits over the consecutive years up to the 2020/21 18 191 financial year.
However, the achievement of clean audits needs to be translated into improving service delivery across government through planning, monitoring and evaluation.

Serious consideration should be given to sticking to targets that affect the core mandate of the Department.

Bills that must be tabled have to be tabled as per the undertaking of the Department on numerous occasions to the Committee.
Brand South Africa must diligently undertake coordinated initiatives to build South Africa’s reputation and to contribute to the country’s global competitiveness.

Brand South Africa continues to build bridges across the continent, which is a noble gesture.

Report to be considered 19 192 6.

BUDGETARY REVIEW AND RECOMMENDATIONS REPORT (BRRR) OF THE PORTFOLIO COMMITTEE ON PUBLIC SERVICE AND ADMINISTRATION ON STATISTICS SOUTH AFRICA 2020/21 FINANCIAL YEAR, DATED 24 NOVEMBER 2021 1.
BACKGROUND The Portfolio Committee on Public Service and Administration (hereinafter referred to as the Portfolio Committee) having considered the directive of the National Assembly, which is in line with Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.

9 of 2009 to consider and report on the Annual Report of the Statistics South Africa.

It should be noted that Statistics South Africa operates independently from the Executive.

The BRR Report is tabled as follows: 2.


INTRODUCTION Parliament derives its mandate from the Constitution of the Republic of South Africa.

The strategic objectives of the Portfolio Committee are informed by five strategic goals of Parliament.

The functions of the Portfolio Committee on Public Service and Administration as well as Planning, Monitoring and Evaluation are as follows: • Participating and providing strategic direction in the development of the legislation and thereafter passing the laws.
• Conducting oversight over the Executive to ensure accountability to the Portfolio Committee towards achieving an effective, efficient, developmental and professional public service.

• Conducting public participation and engaging citizens regularly with the aim to strengthen service delivery; oversee and review all matters of public interest relating to the public sector.
• Monitoring the financial and non-financial aspects of departments and their entities and ensuring regular reporting to the Committee, within the scope of accountability and transparency.

• Supporting and ensuring the implementation of the PSC recommendations in the entire public service.

1 193 • Participating in the international treaties which impact on the work of the Committee.
On November 11, 2021, the Committee considered the Annual Report for 2020/21 financial year of Statistics South Africa for the Budgetary Review and Recommendations reports.

3.

PURPOSE OF THE BUDGETARY REVIEW AND RECOMMENDATIONS REPORT Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.
9 of 2009 the National Assembly, through its Committees, must annually compile Budgetary Review and Recommendations reports (BRRR) that assesses service delivery and financial performance of departments and may make recommendations on forward use of resources.

The BRRR is also a source document for the Committees on Appropriations when considering and making recommendations on the Medium Term.
Moreover, the Money Bills Amendment Procedures and Related Matters Act, section 5 (3) highlights focus areas on the budgetary review and recommendation report as: • Providing an assessment of the department’s service delivery performance given available resources.

• Providing an assessment of the effectiveness and efficiency of the departments use and forward allocation of available resources; and • Including recommendations on the forward use of resources.
3.1 Method The Portfolio Committee on Public Service and Administration compiled the 2020/21 BRRR using the following documents: • The National Development Plan: Vision for 2030.

• Medium Term Strategic Framework 2019-2024.

• • • • • • State of the Nation Address 2020.

Strategic Plans of the Statistics South Africa 2019-2024.

National Treasury (2020) 4th Quarter Expenditure Report 2020/21 Financial Year Annual Performance Plans 2020/21 of the Statistics South Africa.
Annual Report 2020/21 of the Statistics South Africa.

Auditor-General South Africa’s outcomes of audit findings 2020/21.

2 194 • The Portfolio Committee met with the leadership of the Statistics of South Africa 4.

NATIONAL DEVELOPMENT PLAN VISION 2030 The National Development Plan highlights the need for South Africa to build a State that is capable of playing a developmental and transformative role.

This requires the State to formulate and implement policies that support that role.
The NDP and the Medium Term Strategic Framework are informed by statistical information provided by Statistics South Africa, which publishes more than 200 statistical releases per year.

The publications present statistical research that measures the development and transformation of the economy and society in a range of context.
Changing economic and societal realities have expanded the demand for statistical information: more detailed statistics are needed and more frequently if policies are to be responsive and effective.

Statistics in the public domain must be of high quality.

Responding to the increased demand for high quality statistics will require a national effort, and collaboration and partnerships between the producers and the users of statistics.

5.
5.

MANDATE OF THE STATISTICS SOUTH AFRICA Statistics South Africa is a national government department accountable to the Minister in the Presidency: Planning, Monitoring and Evaluation.

The department’s activities are regulated by the Statistics Act (1999), which mandates the department to advance the production, dissemination, use and coordination of official and other statistics to assist organs of state, businesses, other organisations and the public planning, monitoring and decision making.
The Act also requires that the department coordinate statistical production among organs of state in line with the purpose of official statistics and statistical principles.

However, there is a legislation reform on the cards for the institution.

This legislative reform will inform the full planning cycle of government, from planning to evaluation, including the implementation of the Spatial Data Infrastructure Act.

Stats SA has started the legislative review process.

6.
6.

STRATEGIC PRIORITIES Statistics South Africa aims to contribute towards realisation of the ideals of the National Development Plan (NDP) by providing accurate data policy implementation to overcome social 3 195 challenges such as inequality, poverty and unemployment.

Stats SA works in conjunction with all stakeholders in the country to provide accurate statistical information on economic, demographic, social and environmental factors for proper NDP implementation.
The institution has identified the following strategic priorities, which are: a) To promote and inform the nation through an expansion of statistical products and services.

b) To increase statistical trust through sound quality principles that are in line with international standards.

This will ensure that users of statistics products have confidence and trust official statistics.

c) To promote partners in statistics, international cooperation and participation in statistics.
d) To invest in the learning and capable organisation.

e) To promote statistical leadership through investment in schools and tertiary programmes to increase statistical skills at grass roots level.

7.

DEPARTMENT PROGRAMME PERFORMANCE 7.1 Statistics South Africa 7.1.1 Budget Allocated and Expenditure 2020/21 The budget appropriated to Statistics South Africa for the 2020/21 financial year was R3 131 billion included the allocation earmarked for the Census 2021 pilot.
The actual expenditure was R2 691 billion for all the programmes which is an estimated of 86.3% of the total allocated budget.

The underspending was mainly due to the postponement of the Census 2021 pilot to February 2022 due to the COVID-19 pandemic.

In order to address the historical shortfall, Stats SA was allocated additional amount of R49.4 million for compensation of employees included in the total budget allocation.
The bulk of the budget was allocated in the Statistical Operations and Provincial Coordination with R1 577 billion, administration programme with R714.6 million, and Statistical Support and Informatics with R301.3 million.

Stats SA has achieved 93% of its targets as set out in the Annual Performance Plan whilst under tremendous financial and human resource constraints.

4 196 Human capital remains the most valuable asset in Stats SA.

In order to achieve organisational strategic objectives.
A new structure for Stats SA was approved with effect from 1 April 2020, resulting in the establishment being reduced from 3 511 to 3 313 permanent posts and Senior Management Services posts from 266 to 247.

Total permanent posts were reduced to 198.

The new structure was effectively implemented on the PERSAL system in June 2020.

The total number of filled SMS posts was 182.

The vacancy rate was at 18% posts in the department.

Stats SA needs employees with the necessary skills and competencies.
Stats SA has 3 313 staff complement with personnel cost amounting to R1 486 billion.

In terms of gender representation in the Department, female representation was at 46.4% and male at 53.6%.

Whilst the Department achieved 41.5% representation of females in SMS which was below the regulated 50%.

In terms of People living with disabilities, the Department appointed 37 employees living with disabilities of 2 717 staff currently employed.
The Department experienced resignations of 43.8% of the staff complement in 2020/21 financial year.

In 2020/21 financial year, the Department has lost 73 employees due numerous reasons, such retirement, resignations and death.

Table 1: Appropriation per programme (R’000) Programme R'000 Final Appropriation Actual Expenditure Shifting funds of Virement Variance 14 539 6 073 (276) 1 076 (5 149) 491 (4 130) 1 664 2 075 15 369 (6 640) 414 226 (419) 1 360 0 440 259 1.
Administration 714 607 708 534 2.Economic Statistics 264 656 263 580 3.

Population and Social Statistics 112 139 111 648 4.

Methodology Statistical Infrastructure and 132 218 130 554 5.

Statistical Support and Informatics 301 297 285 928 6.

Statistical Operations Provincial and Coordination 7.
South National System African Statistics 1 577 914 1 163 688 28 742 27 382 Total 3 131 573 2 691 314 Stats SA Annual Report 2021 7.2 Programme Performance 0 0 0 0 0 0 0 0 Statistic South Africa has seven programmes, namely: 5 197 (a) Programme 1: Administration The purpose of the programme is to provide strategic leadership, management and services to the department.
The Administration programme has four sub-programmes, which are as follows, Department Management, Corporate Services, Financial Management Services, Internal Audit and Office Accommodation.

The strategic intention of the programme is focused on driving the outcome of transformed capability.

The programme will align itself to the strategy of digitisation through automation of processes.
The provision of support to projects, including the Census 2021 project, will utilise all facets of automated processes.

A cost- effective strategy to reduce the major cost driver in surveys which, apart from the compensation of employees is the utilisation of vehicles, will be explored.

Stats SA will transform and change agenda to facilitate and drive the culture and organisational change required to implement the new strategic direction.
The implementation of the revised structure and relocation of staff to critical areas will be rolled out in 2020/21.

An alternative funding model will be explored through research.

The programme achieved 31.6% of its annual targets as scheduled in the Work Programme and 68.4% were not achieved.

The COVID-19 pandemic, which resulted in a national lockdown had a negative impact on the programme’s performance since Programme 1 contained targets in support of the Census 2021 pilot that had to be postponed.
The programme has spent R708.5 million of the allocated funds.

Of the total expenditure, an amount of R224.5 million was spent on compensation of employees, whilst an amount of R223.8 million was spent on goods and services.

The amount spent on good and services includes an amount of R140.0 million that was spent on operating leases and R43.2 million on property payments.

The Census 2021 pilot was postponed to 2021/22 due to the COVID-19 pandemic, impacting on the project support provided.
Project support included integrated planning, monitoring and reporting on the census trial and post-enumeration survey activities in preparation for the Census 2021 pilot.

Under human resource management, among the output achieved include the implementation of a gender based violence programme, alignment of skills development plan and the implementation of the new structure is in process.
The Department’s response to prioritising women, youth and persons living with disabilities in the Employment Equity targets including women at SMS level were not achieved due to the pandemic as recruitment processes for permanent placements commenced during the latter part of the year and no youth contract 6 198 staff were recruited due to the postponement of the Census Pilot until the 2021/22 financial year.
(b) Programme 2: Economic Statistics The Economic Statistics programme produces economic statistics to inform evidence-based economic development and transformation in line with internationally recognised practices.

Its main objectives are to expand the economic statistics information base by increasing the depth, breadth and geographic spread for evidence based planning.

Programme Management for Economic Statistics provides strategic direction and leadership.
The programme achieved 99.1% of its annual targets, as scheduled in the Annual Performance Plan.

A total of 225 statistical releases were published, including 1 release on a business impact survey of the COVID-19 pandemic.

The programme spent R263.6 million of the allocated funds.
Of the total expenditure, an amount of R246.9 million was spent on compensation of employees, whilst an amount of R15.5 million was spent on goods and services for items such as consultants, communication, travel and subsistence and operating payments.

The programme actual expenditure when compared against the benchmark was 99.6% when applying straight-line analysis.

Key achievements included monthly, quarterly and annual releases in line with the international Special Data Dissemination Standards.
The programme informed economic planning, monitoring and decision-making by providing accurate, relevant and timely statistical information on the level of economic activity in relation to the primary, secondary and tertiary sectors of the economy, financial information on private sector businesses and government and information on sustainable resource use and management.
Additionally, the programme provides information on the level of inflation by producing the consumer price index and various producer price indices, which measure changes in the prices of a basket of goods and services purchased by South African households and prices of a basket of commodities at producer level each month.

Key outputs included 48 published releases consisting of monthly CPI and PPI releases.
(c) Programme 3: Population and Social Statistics The purpose of the Programme is to produce population, demographic, labour market and social statistics to inform socio-economic development.

Population and social statistics inform evidence based socio-economic development and transformation in line with internationally recognised practices.
Programme 3 contributes to strategic objective to sustain national 7 199 population and social indicators to inform evidence-based planning, monitoring and decision- making for use by the public and private sector through publishing numerous series such as labour market and employment surveys.
The outputs produced under this Programme contribute immensely towards the monitoring of the MTSF 2020-2024, the National Development Plan goals and indicators, Agenda 2063 as well as the Sustainable Development Goals.

Stats SA achieved 94.1% of its targets as scheduled in the Annual Performance Plan, of which 5.9% were not achieved.

The programme spent R111.6 million of its allocated budget.
Of the total expenditure, an amount of R94.3 million was spent on compensation of employees, whilst an amount of R13.2 million was spent on goods and services such as travel and subsistence and operating payments.

Actual expenditure compared against the benchmark spending was 99.6%.

The programme published documents consisting of mid-year population estimates at national, provincial, district and metro levels and a technical report on democracy.
Additional reports include social impact of COVID-19 and a report on the COVID-19 pandemic in South Africa were compiled.

Census 2021 instruments were reviewed as scheduled.

A technical report on the evaluation of data for the Census 2021 pilot will be complemented once Census 2021 pilot data collection has been completed.

The programme provides information on employment levels in the formal, non-agriculture sector as well as labour market trends in the country.
The programme published documents consisting of quarterly releases on employment and earnings and labour market information, an annual report on labour market statistics and a report on child labour.

One of the key strategic targets over the medium term is the implementation of the Continuous Population Survey (CPS), depending on additional allocation of funding.
(d) Programme 4: Methodology, Standards and Research The purpose of the Programme is to set standards, statistical frames, methodologies and conduct statistical research.

The main objective of the Programme is to improve the quality and methodological soundness of statistical information by researching, developing, reviewing and applying statistical methods, standards, classification and procedures in the statistical value chain annually.
The Programme further monitors and evaluates the methodological compliance of statistical operations by conducting independent evaluations on statistical practices annually.

In addition, it ensures complete and accurate sampling frames to enhance the quality of 8 200 economic and social statistics by maintaining and updating frames for business and geographic information annually The programme achieved 66.7% of annual targets as at 31 March 2021 and 33.3% targets were not achieved.
Programme 4 had a total of 8 indicators and 8 in the original Work Programme tabled in March 2021.

The re-tabled Work Programme had a total of 6 indicators and 6 targets.

The programme contributes to providing technical expertise on methodological practices for producing official statistics in the economic and social statistics.

Technical expertise provided include “Pre-pilot test” PES system for data processing and analysis, and a PES 2021 pilot overall process flow.
“Pre-pilot” data collection and reconciliation visits on and off field and data matching for census 2021 “Pre-pilot test” (PES) formed part of the programme’s activities.

The programme spent R130 554 million of the budget allocated of R132 218 million.

Of the total expenditure, an amount of R124 780 million was spent on compensation of employees, whilst an amount of R5 333 million was spent on goods and services.

The main cost drivers are computer services, operating payments and communication.
Actual expenditure as compared against the benchmark spending was 98.7%.

Amongst key achievement in the year under review include the developments of standards, classification and definitions for surveys undertaken by the department.

Statistical Standards adapts and adopts internationally acclaimed practices.

A key output included the adoption of the South African national ecosystem classification system.
Another output in the programme included the provision of sampling frame for household survey and censuses and provided geospatial information and analysis and spatial tools.

Furthermore, the programme monitors the quality of field operations of household surveys and censuses and conducts independent evaluations.

(e) Programme 5: Statistical Support and Informatics This Programme enables service delivery programmes by using technology in the production and use of official statistics.
The main objective is to modernise business processes by building enterprise architecture and applying emerging technologies for data collection, processing and the dissemination of statistical information over the medium term.

The Programme further aims to enable the department’s production of official statistics by providing a technology infrastructure that is reliable, sustainable and cost effective over the medium term to inform policy through the use of statistical geography.
9 201 The Programme promotes and provides better access to official statistics.

The Programme contributes to enhancing public confidence and trust in statistics and investing in the learning and growth of the organisation.

Moreover, the Programme collaborates with partners to build and maintain a reliable sampling frame for household surveys by updating the spatial information frame annually.
In addition, it increases awareness of and the use of official statistics by government and the public on an ongoing basis by reaching out to stakeholders and responding to user queries, educating users and improving accessibility to and the ease of use of statistical information.

Programme 5 achieved 75.0% of annual targets and 25.0% were not achieved.

Programme 5 had a total of 9 indicators and 12 targets in the Work Programme tabled in March 2021.

The re-tabled WP had a total of 7 and 8 targets.


The programme spent R285 928 million of the allocated budget.

Of the total expenditure, an amount of R135 011 million was spent on compensation of employees, whilst an amount of R112 682 million was spent on goods and services.

The programme spent 94.9% of the allocated budget.

The programme contributed to managing internal and external communications in the department and maintains relations with stakeholders across the country.
Key output included a report on the implementation of Stats SA’s brand management strategy and communication and marketing support to planning for the Census 2021 pilot.

Moreover, the programme developed 5 applications/systems for Census 2021.

The programme further provides technology infrastructure to the department and supports data management across statistical series.
A key output was the upgrading of the ICT environment with the implementation of the Security Information and Event Management (SIEM) solution.

The programme provides integrative statistical advice and support to policy planners and development practitioners and participates in knowledge research and innovation on key development themes.
The key outputs include research reports on Cities, Urban and Rural: Applying Global Definitions to South Africa and the Annual Report on South Africa Protects Statistics.

(f) Programme 6: Statistical Operations and Provincial Coordination The purpose of the Programme is to collect and process data and interact with stakeholders and users at provincial and local levels to inform policy implementation and support decision- making through statistical information.
It engages stakeholders through platforms and provides effective communication services.

10 202 The main objective is to provide integrated data collection services, and disseminate quality statistics to provincial and local stakeholders and the public by ensuring an average response rate of 85 per cent annually.
Another objective is to expand the statistical information base for use by government, the private sector and the public by conducting a population census every 10 years, and large-scale population surveys every five years between censuses.

It further ensures the efficiency and effectiveness of survey operations by coordinating household surveys to attain an average response rate of 85 per cent annually.
The Programme improves the quality and timeliness of the editing and processing of statistical data by administering a common data processing platform for censuses, household surveys, administrative records and ad hoc survey data over the medium term.

Statistical Operations and Provincial Coordination achieved 21.4% of annual targets and 78.6% were not achieved.
The non-achievement of targets can be attributed to the postponement of the Census pilot due to the COVID-19 pandemic and not to underperformance of the programme.

The programme spent R1.164 billion of the allocated budget.

of the total expenditure, an amount of R642.8 million was spent on compensation of employees, whilst an amount of R509.9 million was spent on goods and services.
Included in the allocated budget of R1.578 billion is an amount of R854 million, which was earmarked for funds for Census 2021 pilot.

The programme spent 73.7% of its allocated budget, thus underspending by 26.3% mainly on payment of capital assets and goods and services due to the postponement of Census pilot as a result of the restrictions of movement due to the lockdowns of Covid-19 pandemic.
The programme provides integrated data collection and dissemination services, and promotes the use and coordination of official statistics to provincial and local stakeholders.

A key output includes a proposal for integrated fieldwork to streamline statistical operations.

Furthermore, the programme includes a concept note on multimode data operation approaches and a national report on digital data collection for household survey.
The programme contributed to increasing awareness and marketing, and communicating and disseminating official statistics to relevant stakeholders through effective stakeholder management, internal communication and public and media relations.
Furthermore, the programme contributed towards expanding the statistical information database through integrated fieldwork, continuous data collection, stakeholder management, increased collaboration and strengthening partnership within the South African National Statistics System (SANSS), promoting the harmonisation of statistics in Africa, strengthening statistical 11 203 capacity on the continent, promoting international statistical best practice and building international partnerships.
Programme 7: South African National Statistics System The purpose of the Programme is to develop and coordinate the national system in South Africa.

The objective of the Programme is to ensure that national statistics are produced based on common statistical standards and principles by providing statistical support and advice on an ongoing basis, and certifying statistics as official annually.
It manages the distribution of statistical information by establishing and providing mechanisms, platforms and criteria for sharing data annually.

It drives statistical reporting by coordinating the compilation of statistical reports in line with the integrated indicator framework annually.

Stats SA achieved 100% of the targets of the Annual Performance Plan.

The programme spent R27 382 million of the allocated funds.
Of the expenditure, an amount R20 828 million was spent on compensation of employees, whilst an amount of R1 982 million was spent on goods and services items such as communication, operating payments and computer services.

The programme spent 95.3% of its allocated budget.

The programme coordinates the production of economic and environmental statistics amongst entities on national statistics system.
Key outputs include a clearance report for the Department of Science and Innovation’s 2018/19 Research and Development Survey, a review of the Integrated Indicator Framework based on the Regional Indicative Strategic Development Plan (RISDP), indicators for the environment sector and the signing of Memorandum of Understanding (MoU) with the South African Reserve Bank to formalise collaborative work between Stats SA and the SARB.
The programme further assesses the quality of statistics of data producers and designates as official.

Key output included a quality assessment report for electricity generated and available for distribution survey and a reviewed South Africa Statistics Quality Assessment Framework (SASQAF) (edition 3 version 2).

The programme was responsible for the report on the legislative reform process.

12 204 8.
12 204 8.

AUDITOR-GENERAL OUTCOMES The Auditor-General has audited the financial statements of the Statistics South Africa, set out on pages 149 to 229, which comprise appropriation statement, the statement of financial position as at 31 March 2021.

The statement of financial performance, statement of changes in net assets and cash flow for the year ended as well as the notes to the financial statements including a summary of significant accounting policies.
The Auditor-General’s opinion indicates financial statements present fairly, in all material respects, the financial position of Statistics South Africa and its financial performance and cash flows for the year are in accordance with the Modified Cash Standard and the requirement of the PFMA.

Statistics South Africa received an unqualified opinion.
8.1 Predetermined objectives The Auditor-General performed procedures to determine whether the reported performance information was properly presented and whether performance was consistent with the approved performance planning documents.

The AG did not identify any material findings on the usefulness and reliability of the reported performance information on programme 2- Economic Statistics.
8.2 Emphasis of matters The AG draws an opinion with uncertainty relating to future outcome of exceptional litigation and underspending of vote.

The department is a defendant in two litigations, one relating to a claim involving a loss of revenue as a result of withheld unitary fees and variations in alleged additional office installations and the other to a claim relating to the payment of salary increases.
Moreover, the department materially underspent the budget by R414 million on programme 6: Statistical Operations and Provincial Coordination.

The underspending relates to a census project, which did not take place as planned due to COVID-19 pandemic.

8.3 Unauthorised expenditure The Department incurred unauthorised expenditure of R57 140 000 mostly on compensation of employees due to budget reductions that exceeded the vacancy rate in the 2018-19 financial year.
This resulted in the department not being able to afford the cost of filled positions.

13 205 8.4 Internal Control Internal control of the Stats SA considered to be in compliance with applicable legislation in terms financial statements and reported performance information.
Compliance monitoring was not effective, mainly due to the misinterpretation of the 2017 procurement regulation on local production and content as well as a lack of adequate oversight by management, resulting in the non-compliance identified.

The AG identified the matter as internal control deficiency that resulted in the findings on compliance with legislation.

9.
9.

OBSERVATIONS AND KEY FINDINGS The Portfolio Committee made the following observations: 9.1 The Portfolio Committee notes that Statistics South Africa received unqualified audit for consecutive years up to the 2020/21 financial year.

The Committee commends Stats SA for good performance, although operating under tough financial and human resource constraints.
9.2 The Committee notes that part of the priorities in the implementation of organisational structure is to fill funded vacant positions and ensure attainment of employment equity targets by employing 50% of women in senior management and 2% of People with Disabilities, but this should not come at the cost of increasing the vacancy rate beyond 10%.

Stats SA continued to fill critical post with the additional amount of R49.4 million budget allocated over the medium term for compensation of employees.
9.3 The Committee notes that Stats SA’s planned Census 2022 will officially commence in February 2022.

The Committee welcomes the announcement, however, the date for Census 2022 will be formally gazetted and proclaimed by the Minister in the Presidency for the Department of Planning, Monitoring and Evaluation.

9.4 Stats SA has, over the past years, prepared itself, even prior to the advent of COVID-19 pandemic, to move away from face-to-face data collection.
The Committee notes that Stats SA is in a process of preparing for the first-ever digital census, where data will be collected via electronic devices rather than face to face 14 206 paper questionnaires.

Stats SA will move into online, telephonic and other distance forms of data collection in generating statistics for the country.

The Committee supports all efforts during census project and will ensure that all South Africans participate in this crucial project.
9.5 The Committee learned that the COVID-19 pandemic affected the business operation model of Stats SA.

Stats SA has been forced to be innovative and to optimise its scarce resources to align its business process towards digitisation.

However, the Committee was of the view that digitisation of the business process should be confined to the statistical norms and standards, without compromising the reliability and quality statistics produced over the past years.
9.6 The Committee learned that Stats SA will conduct its first virtual training of the enumerators in order to empower them with multimode methods to be used during census 2022 such as telephonic interview and computerised assistive programme.

Stats SA will be utilising municipal offices as the operational centres for training and for the entire census.

Enumerators will be provided with tablets for collecting data, which includes power bank in case the battery runs out.
9.7 The Committee learned that Stats SA terminated contracts of fieldworkers who were employed on a contract basis due to the introduction of the new multimode data collection such as computer assisted and telephonic interviews and impact of COVID-19 pandemic.

9.8 The Committee notes that Stats SA will employ a total of 165 000 fieldworkers on a contractual basis during the Census 2022.
In terms of selection criteria for the fieldworkers, preferences will be given to candidates with experience in data collection, especially in rural areas and where connectivity does not exist.

Candidates who were expelled in the public service will not be hired.

9.9 The Committee notes that Stats SA has managed to secure funding over the medium term for the income and poverty survey which was last conducted in 2013/2014.
The country has no up-to-date data relating to poverty picture which has worsened during the COVID-19 pandemic.

The Committee highlights the 15 207 importance of conducting the income and poverty survey in order to assist planners with the percentage of people that are poor in the country.

10.
10.

RECOMMENDATIONS The Portfolio Committee recommends that: 10.1 The Minister in the Presidency for Planning, Monitoring and Evaluation and the Minister of Finance should continue with efforts to urgently resolve the budget shortfall impacting on critical surveys at Stats SA so that crucial and quality statistics get generated to the country and Government’s benefit.
10.2 Statistics South Africa expeditiously finalise and table amendment to the Statistics Act (1999) to drive statistical reform in the country timeously to Parliament.

The amendments of the Act should firmly respond to the evolving environment, with particular emphasis on statistical coordination, the data revolution, a state-wide statistical service and institutional arrangements.
10.3 Stats SA should put necessary measures in place to ensure successful Census 2022, especially with regard to the possibility of a fourth wave regarding the COVID-19 pandemic.

Health and safety of the fieldworkers should remain of paramount importance as they collect data for Census.

10.4 Stats SA should during census ensure the process of data collection is as inclusive as possible particularly with regard to the connectivity in the remote rural areas.
ICT should not be a hindrance for collecting data since a web-based surveys (CAWI) or even telephonic interviews (CATI) will be used throughout the census.

10.5 Statistics South Africa should urgently devise a strategy on its vacancy rate, as this affects service delivery.

10.6 Stats SA should strengthen its internal controls in relation to matters identified by the Auditor-General during the determination of audit outcomes of the 2020/21 financial year.

16 208 11.
16 208 11.

CONCLUSION The Department was able to spend the entire allocated budget and achieve set targets under difficult conditions of COVID-19 pandemic and hard lockdowns.

The Department’s funding must be given urgent attention to prevent the shortfall that occurred during the financial year.

Statistics South Africa continues to play a critical role in South Africa and internationally.
Statistical releases give meaning to the evidence-based policy making, decision making, planning and allocation of the budget in the country.

Currently, the institution experiences funding challenges, which hamper its effectiveness in the production of quality, reliable and timely statistics.

Stats SA will be embarking on the Census phase.

The Committee is optimistic that Census 2022 will run smoothly despite any possible eventuality of the fourth wave of the COVID-19 pandemic.
The Committee will after gazetting and declaration of the date by the Minister in the Presidency for Planning, Monitoring and Evaluation encourage South Africans to participate in sharing their information.

This will assist government in making informed decisions with regard to planning and budget allocation.

Report to be considered 17 209 7.


BUDGETARY REVIEW AND RECOMMENDATIONS REPORT (BRRR) OF THE PORTFOLIO COMMITTEE ON PUBLIC SERVICE AND ADMINISTRATION REPORTING ON THE PUBLIC SERVICE COMMISSION (PSC) ANNUAL REPORT FOR THE 2020/21 FINANCIAL YEAR, DATED 24 NOVEMBER 2021 1.
BACKGROUND The Portfolio Committee on Public Service and Administration (hereinafter referred to as the Portfolio Committee) having considered the directive of the National Assembly, which is in line with Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.

9 of 2009 to consider and report on the Annual Report of the Public Service Commission (Independent body), reports as follows: 2.
INTRODUCTION Parliament represents the people of South Africa and it has a responsibility to keep the government accountable to the people.

Parliament derives its mandate from the Constitution of the Republic of South Africa.
According to Section 55 (2) of the Constitution “the National Assembly must provide for mechanisms (a) to ensure that all executive organs of state in the national sphere of government are accountable to it; and (b) to maintain oversight of the exercise of national executive authority, including the implementation of legislation and any organ of state.

Parliament has developed and approved its Strategic Plan for the 06th democratic Parliament.
The 6th Parliament reaffirmed its commitment to law making, oversight and public participation but also to its vision of being an activist and responsive people’s Parliament that improves the quality of life of South Africans and ensures enduring equality in our society.

The strategic objectives of the Portfolio Committee are informed by five strategic goals of Parliament.
The functions of the Portfolio Committee on Public Service and Administration are as follows: • Participating and providing strategic direction in the development of the legislation and thereafter passing the laws.

210 • Conducting oversight over the Executive to ensure accountability to the Parliament towards achieving an effective, efficient, developmental and professional public service.

• Conducting public participation and engaging citizens regularly, with the aim to relating to the public sector.
• Monitoring the financial and non-financial aspects of departments and its entities and ensuring regular reporting to the Committee, within the scope of accountability and transparency.

• Supporting and ensuring implementation of the Public Service Commission (PSC) recommendations in the entire public service.

• Participating in international treaties which impact on the work of the Committee.
In March 2020, South Africa was among countries worldwide experienced and seized with managing the outbreak of the Coronavirus 2019 (hereafter referred to as COVID- 19) which has been declared a global pandemic by the World Health Organisation.

The emergence of the COVID-19 pandemic has had a devastating effect on the health, economic and social systems of most countries around the globe.
In South Africa contexts, its impact has already been observable in the resources of government and has put a strain in its delivery capacity and the country’s ability to meet its NDP priorities.

Government has during 2020/21 financial year, cut budgets of most of state institutions to fund health programmes aimed at fighting the spread of the COVID-19 pandemic in the country.
On November 10, 2021, the Committee considered the Annual Report for 2020/21 financial year of the Public Service Commission for the Budgetary Review and Recommendations reports.

3.

PURPOSE OF THE BUDGETARY REVIEW AND RECOMMENDATIONS REPORT In terms of Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.
9 of 2009 the National Assembly, through its Committees, must annually compile Budgetary Review and Recommendations reports (BRRR) that assesses service delivery and financial performance of departments and may make recommendations on 211 forward use of resources.

The BRRR is also a source document for the Committees on Appropriations when considering and making recommendations on the Medium Term.
The Money Bills Amendment Procedures and Related Matters Act, section 5 (3) highlights focus areas on the budgetary review and recommendation report as: • Providing an assessment of the department’s service delivery performance given available resources.

• Providing an assessment of the effectiveness and efficiency of the departments use and forward allocation of available resources; and • Including recommendations on the forward use of resources.
3.1 Method The Portfolio Committee on Public Service and Administration compiled the 2020/21 BRRR using the following documents: • The National Development Plan: Vision for 2030.

• Medium Term Strategic Framework 2019 - 2024.

• • • • • • • State of the Nation Address 2020/21.

Strategic Plan of the PSC.

National Treasury (2021) 4th Quarter Expenditure 2020/21 Financial Year.

Annual Performance Plan (2020/21) of the PSC.

Annual Report (2020/21) of the PSC.


Auditor-General South Africa’s outcomes of audit findings 2020/21.

The Portfolio Committee also met with the leadership and management of the PSC.

4.

OVERVIEW OF THE PUBLIC SERVICE COMMISSION The PSC is an independent institution established in terms of Chapter 10 of the Constitution.
It derives its mandate from Section 195 and 196 of the Constitution, 1996, which set out the values and principles governing public administration, which should be promoted by the PSC, as well as the powers and functions of the PSC.

The PSC is required by the Constitution to exercise its powers and to perform its functions without fear, favour or prejudice.

The Constitution links the PSC’s independence firmly with its impartiality and no organ of state may interfere with the functioning of the PSC.
212 The PSC is vested with custodial oversight responsibilities for the Public Service and monitors, evaluates and investigates public administration practices.

It also has the power to issue directions regarding compliance with personnel procedures relating to recruitment, transfers, promotions and dismissals.

The PSC is accountable to the National Assembly and to Provincial Legislatures and must annually report on its activities and performance to these two institutions.

5.
5.

LEGISLATIVE MANDATE The PSC is a constitutional oversight body, established in 1996, primarily to promote “a high standard of professional ethics in the public service”.

The PSC operates in terms of the PSC Act 1997.

The Act provides for the regulation of the PSC with regard to: a) The constitution of the PSC.

b) Appointment of Commissioners.

c) Designation of the Chairperson and Deputy Chairperson.

d) Conditions of appointment of Commissioners.

e) Removal from office of Commissioners.


f) Functions of the PSC (inspections, inquiries, etc.)

g) Rules according to which the PSC should operate.

h) The Office of the PSC (OPSC); and i) Transitional arrangements with regard to service commissions (created under the Interim Constitution).

6.

STATE OF THE NATION ADDRESS The key priority identified in the SONA 2020 for the PSC was: Tackling Corruption and Building a Capable State.
SONA 2020 undertook to tackle corruption and build the capacity of the State by: • Government establishing a “joint government and civil society working group charged with developing a national anti-corruption strategy and implementation plan, which was close to completion of this phase of its work.

Government launched the strategy by mid-year (2020).

Since the introduction of the Public Service Regulations 2016, there were reports that some public servants still conduct business with the State.
213 • Ensuring that Government would reinforce areas like ethics and anti-corruption, senior management and supply chain management, and deployment of managers to the coalface to strengthen service delivery.

7.
7.

STRATEGIC GOALS OF THE PSC The strategic goals of the PSC for 2019-2024 are as follows: 7.1 Promoting the implementation values and principles The PSC has a constitutional mandate to promote and monitor compliance with constitutional values and principles in the course of rendering of services to the public.
The promotion of the constitutional values and principles is aimed at fostering a positive behavioural change in the public servants and the Public Service in order to ensure that services are delivered in a responsive, caring and ethical manner, among other things.

In order to ensure the continuity over the MTEF period, the commission plans to conduct 50 quantitative evaluation reports in 2020/21 and 12 qualitative evaluations in each of the remaining years of the MTEF period.
The purpose of these reports and evaluations is to assess departments’ compliance with constitutional values and principles with a view to promoting a culture of excellence in the public service.

Quantitative indicators are used to establish whether systems are in place, while qualitative indicators aim to establish whether those systems assist in effecting change.
7.2 Promoting professional ethics in the public service In terms of Section 195 of the Constitution, the PSC is required to promote professional ethics in the Public Service.

Given this Constitutional mandate, the PSC would raise ethics awareness through the promotion of Code of Conduct in the public service ethical leadership dialogues and commemoration of international events such as the International Anti-Corruption Day.
7.3 Public Administration Investigations The PSC will, over the MTEF, continue to conduct investigations as a way of holding public service accountable in exercising their functions.
A variety of access mechanisms have been established by the PSC to promote accountability and encourage a culture of reporting ethics- related issues, accountability-related issues such as appointment, procurement and financial irregularities, non-compliance with Public Service legislation and policy, service delivery and professionalism-related issues such as bias/impartiality, unfairness, discrimination and 214 prejudice, and performance-related issues such as incapacity, incompetence, lack of training/capacitating and lack of representivity.
7.4 Management of the Public Sector National Anti-Corruption Hotline Public Sector National Anti-Corruption Hotline (NACH) is another mechanism established by government to prevent and combat corruption.

Government has introduced the NACH for departments, public entities and local government in 2004 through a Cabinet Decision of 14 August 2003.
The investigation or resolution of the NACH cases has been a challenge since its inception and has been an MTSF commitment for a number of years and departments are expected to resolve 80% of cases lodged with the NACH per quarter.

The PSC would over the MTSF monitor the resolution of these cases.
7.5 Management of the Financial Disclosure Framework In terms of Regulation 21(1)(a) of the Public Service Regulations, 2016, the PSC is required to scrutinise the financial disclosure forms of Members of the SMS.

The purpose of the scrutiny is to assess compliance with the requirement to disclose all financial interests and also establish whether the involvement of officials in any activities of the companies could lead to conflicts of interest.
The scrutiny of the financial disclosure forms involves the verification of information provided in the financial disclosure forms against the information contained in the Companies and Intellectual Property Commission Deeds Registry and the National Traffic Information System databases.

The PSC also assesses the extent to which SMS members are engaged in work outside their normal employment in the relevant Departments.
7.6 Disciplinary Proceedings on Financial Management In terms of the Public Finance Management Act, 1999 (PFMA) read in conjunction with Treasury Regulations, 2002, accounting officers of departments are required to report on the outcome of completed disciplinary proceedings on financial misconduct, to amongst others, the PSC.
The PSC will over the MTEF monitor and evaluate, amongst others, how departments are managing financial misconduct, which is part of ensuring that the Public Service maintains a high standard of professional ethics.

The PSC will continue to produce on annual basis an overview of completed disciplinary proceedings in respect of financial misconducts.

The overview is aimed at reflecting on action taken by departments institutionalising consequence management on cases of financial misconduct.

215 8.
215 8.

PUBLIC SERVICE COMMISSION PROGRAMME PERFORMANCE 8.1 Budget Allocated and Expenditure 2020/21 The PSC’s original budget was R297.6 million, which was revised downwards to R274.6 million due to COVID-19 challenges.

This downward adjustment affected Goods and Services (reduced by R10 million) and Compensation of Employees (reduced by R13 million).

The PSC spent R262,2 million (95.5 per cent) of its revised 2020/21 budget allocation of R 274,6 million as at the end of March 2021.
The main cost drivers under this Vote were Programme 1: Administration (R121.6 million), followed by Programme 4: Integrity and Anti-Corruption (R53.7 million) and Programme 2: Leadership and Management Practices (R47.2 million).

It may be highlighted here that the amounts allocated to these cost drivers were bigger than others in the same manner as the spending on them.
Of the budget spent for 2020/21 financial year, the PSC had not incurred unauthorised, fruitless and wasteful expenditure as by March 2021.
In terms of the human resources management capacity, the number of posts of the Office of Public Service Commission decreased in the 2020/21 reporting year from 291 (of which 17 were employees employed additional to the establishment to 284 in the 2020/2021 reporting year (of which 10 were employees employed additional to the establishment) 261 of these were filled posts.

The PSC spent 99.9% of the total voted expenditure for compensation.
The largest percentage of personnel cost to the compensation of employees on salary levels 13 to 16.

The vacancy rate of 7% for the 2019/2020 increased to 8% in the 2020/2021 financial year.

Appropriation per programme (R’000) Programme R’000 Final Expenditur Varianc Virement Percentag 1.

Administration 128 597 121 638 6 959 (1 918) 2.

Leadership and Management 47 308 47 272 36 3 503 appropriation e e Practices 3.

Monitoring and Evaluation 40 382 4.


Integrity and Anti-Corruption 57 493 38 542 53 704 1 840 3 789 ( 2 242) 657 Total (PSC) 273 780 261 156 12 624 - PSC: Annual Report 2020/21 e 94.6% 99.9% 95.4% 93.4% 95.4% 216 8.2 PROGRAMME PERFORMANCE One target in the APP was not met, namely the 100% payment of valid invoices paid within 30 days of receipt.
The PSC has improved its controls in this area and for the 2021/22 financial year has decided to review its own standards to ensure that valid invoices are paid within 7-14 working days of receipt, especially due to the dire impact on small business.

The PSC had 27 targets, 26 of which were achieved.

This represents 96 per cent achievement of targets.

The one that was partially achieved was payment of valid invoices within 30 days of receipt.
The performance of the PSC is thus proportionate to its budget expenditure.

The PSC has four programmes which performed as follows: 8.2.1 Programme 1: Administration The purpose of this Programme is to provide overall management of the PSC and centralised support services.

This programme reported expenditure of R121.6 million (94.5 per cent) of its available budget as at the end of the fourth quarter of 2020/21.
The main cost drivers were: Chief Financial Officer (R39,6 million), due to ensuring that no unauthorised expenditure took place, as well as the procurement of the Data Warehouse from the State Information Technology Agency (SITA); followed by Peoples Management Practices (R23,3 million) due to the implementation of Imvuselelo Programme, which focused on re-engineering, culture change and capacity building regarding the “new normal” that was imposed by the pandemic; and Property Management (R22,8 million), which deals with office accommodation, fixed and movable assets.
The PCS set nine targets under Programme 1, eight of which were achieved as planned, whilst the remaining one was not achieved.

This translates into 88 per cent achievement.

The target not met relates to not achieving a 100 per cent in paying all valid invoices within 30 days of receipt.

The PSC has implemented 50% of the Imvuselelo programme as planned in the annual performance plan for 2020/21 financial year.
The Imvuselelo Programme was implemented and focused on three pillars, namely, re-engineering, culture change and capability building.

Given the “new normal” working conditions and the evolving COVID-19 regulatory requirements, it was essential to ensure business continuity and react as fast as possible in order to mitigate impacts and other risks associated with the COVID-19 pandemic.
With this programme, the PSC intends strength Outcome Goal 4 of “A strong & well-functioning PSC” 217 by fostering social cohesion whereby employees are able to comfortably impart and share knowledge and promote a conducive work environment where caring is at the forefront of the institution.

The Annual Performance Plan for 2021/22 financial year was approved and submitted timeously to the relevant authorities as per the requirement of the PFMA prescripts.
The PSC has achieved unqualified audit opinion as planned.

A total of 99.97% of payment of invoices paid within 30 days from the date of receipt.

The PSC has appointed 62% of B-BBEE suppliers of total companies conducted business with the institution.

8.2.2 Programme 2: Leadership and Management Practices The Leadership and Management Practices (Programme 2) is responsible for promoting sound Public Service leadership, human resource management, labour relations and labour practices.
The programme has two sub-programmes, namely: Labour Relations Improvement, and Leadership and Human Resource Reviews.

This programme reported actual expenditure of R47.2 million or 99.7 per cent of its 2020/21 budget allocation of R47.3 million as at the end of March 2021.

The main cost driver is the sub-Programme Manager: Labour Management Practices, which regulates management practices regarding labour peace.
The other cost driver is Labour Relations Improvement (R14.8 million), due to the caseload of grievances and resolution to be dealt with.

The programme had a total of five planned targets for the financial year, all of which were achieved.

This translates into a 100 per cent achievement.

Sound management and leadership practices in the Public Service continued to be the foundation of the operations of government.
The PSC is mandated to promote sound labour relations as well as resolving grievances in the Public Service.

During the year under review, the PSC concluded 511 (75%) of the 677 grievance cases, 601 for level 1-12 of which 358 (76%) were concluded within 30 working days upon receipt of relevant information and 76 cases for members of the Senior Management Service (SMS) of which 37 (86%) (57%) were concluded within 45 working days upon receipt of relevant information.
The PSC has finalised 239 of which 6 were concluded and 5 grievances within 45 days.

With regard to the full scale investigation, delays were encountered in obtaining information from the aggrieved and Departmental representatives via email and cell phone due to remote and rotational work arrangements, however, the PSC manage to conclude 511 of the 677 cases.
218 This findings and recommendations from the investigated cases enabled the PSC to identity common challenges and trends that should be addressed through platforms such as the Grievance Management Communique.

The PSC developed a protocol to deal with grievance from service and other departments whose bargaining council resolutions direct employees to refer their unresolved grievances to other structures.
The PSC also conducted an investigative analysis on the performance of the Commission on Restitution of Land Rights.

Although the study did not enter the terrain of the amendment of section 25 of the Constitution.

8.2.3 Programme 3: Monitoring and Evaluation The main purpose of the programme is to improve the functionality of the Public Service through institutional and service delivery evaluation.
This programme reported actual expenditure of R38.5 million or 95.5 per cent of its 2020/21 budget allocation of R40.3 million as at the end of March 2021.

The main cost driver is the Programme Manager: Monitoring and Evaluation (R21.0 million), which monitors service delivery culture within the Public Service.

The programme had a total of six planned targets for the financial year, all of which were achieved.

This translates into a 100 per cent achievement.


The PSC conducted service delivery inspections at various service points in order to influence positive behavioural change in the manner in which services are rendered in the Public Service by public servants.

Service delivery inspections are regarded as a fact-finding exercise to observe and get first-hand information on service delivery.

The number of inspections will be scaled down due to the downward revision of the budget allocation.
The PSC planned to produce 50 quantitative reports, however reduced the target to 25 quantitative reports to allow engagement on the tools.

The PSC launched a Guide on the Constitutional Values and Principles (CVPs) at the Webinar.

The Guide is aimed at creating a shared understanding of the CVPs in the Public Service and provide pointers to make the public service more compliant with the CVPs.

The public administration principles represent a programme for the transformation of the public service.
The Guide goes further than defining the values and principles and begins to define the change that is required under each principle.

The PSC has partnered with the NSG to ensure that the CVPs are infused in the NSG training programme.

219 The PSC had planned to have two constitutional values and principles promotional engagements.

However, the PSC managed to have five constitutional values and principles promotional engagements.
The PSC compiled a report on the performance of government call centres during the COVID-19 Lockdown, as a means to promote responsiveness and hold public servants accountable.

A report was also prepared on the challenges impacting on service delivery across the country during COVID-19 as well as the PSCs interventions to assist citizens.

The PSC conducted research study on coordination in the land reform post-settlement support context.
The study proposed a new coordination model that envisages mitigating current top- down bureaucratic processes that are difficult to coordinate in favour of district level coordination, which implies more authority at the district level to coordinate and collaborate with key role players in the district.
8.2.4 Programme 4: Integrity and Anti-Corruption The Integrity and Anti-Corruption programme is responsible for undertaking public administration investigations, promoting a high standard of professional ethical conduct amongst public servants and contributing to the prevention and combating of corruption.

This programme reported actual expenditure of R53.7 million or 93.5 per cent of its 2020/21 budget allocation of R57.4 million as at the end of March 2021.
The main cost drivers are the Programme Manager: Integrity and Anti-Corruption (R21.2 million), which monitors corrupt practices within the Public Service and the Professional Ethics (R20.3 million) promoting professional ethics in the Public Service by managing integrity systems and conducting research on the effectiveness of ethics promotion in the Public Service.

The programme had a total of seven planned targets for the financial year, all of which were achieved.
This translates into a 100 per cent achievement The PSC continued to pursue the promotion of good governance by conducting number of investigations in the public administration practices.

The investigation emanated from complaints lodged with the PSC through its Complaints Rules and the National Anti- Corruption Hotline (NACH) and request from among others, Executive Authorities, Public servants and whistle-blowers.

At 31 March 2021, there were 334 complaints on the database of the PSC.
98 investigations were finalised of which 92 (94%) were finalised within 90 working days upon receipt of all relevant information.

In addition, there were other 132 complaints handled and closed in accordance with the PSC Rules on handling complaints.

220 The complaints received predominantly related to irregularities regarding human resource and procurement practices.

However, the complaints in 2020/21 financial year decreased to 185 compared to 210 in 2019/20.
During the year under review, the PSC conducted comprehensive review into the handling of complaints.

Subsequent to the comprehensive review, Standard Operating Procedures for the handling of complaints lodged with the PSC were developed and implemented.

The aim of Standard Operating Procedures is to standardise the handling of complaints lodged with the PSC and the handling thereof in an efficient, effective and uniform manner.
The PSC continued to manage systems designed to promote and strengthen integrity in the Public Service such as the Financial Disclosure Framework (FDF) for senior managers and the NACH.

At the end of 2020/21 financial year, the PSC received in total 9 792 (98%) of the 10 032 financial disclosure forms that were expected as at the due date of 31 May 2020.
With regard to the anti-corruption activities, the number of cases reported during 2020/21 financial year was slightly lower than the cases reported during 2018/19 and 2019/20 financial years primarily due to COVID-19 and the previous national lockdown.

Over 56% of the cases reported to the NACH in the 2020/21 financial year were reported by anonymous whistle- blowers.
The key challenge to the NACH service is that currently the NACH is available 5 days per week and 8 hours per day (from08h00 am to 16h30 pm) due to lack of funding.

During the year under review, the PSC conducted an Assessment of professional ethics in the public service and found amongst others that there is leadership commitment on the promotion of ethics.
The PSC in partnership with the South Africa-European Union Partnership Dialogue Facility and UNISA hosted a dialogue under theme: A Value-Driven Public Sector Building State Capacity through Professional Ethics and Integrity.

The engagement aimed to create a platform to engage on critical challenges and opportunities that exist in strengthening ethic and integrity in public administration.

9.
9.

AUDITOR GENERAL’S REPORT The Auditor-General presented the PSC with an unqualified audit opinion for the 2020/21 financial year.

This means that the PSC’s financial statements represent fairly, in all material respects, its financial position as at 31 March 2021.

The PSC’s financial performance and cash flows for the 2020/21 financial year were in accordance with the Modified Cash Standard 221 prescribed by the National Treasury and the requirements of the Public Finance Management Act (PFMA), Act No.
1 of 1999.

10.

FINDINGS AND OBSERVATIONS The Committee made the following observations: 10.1 The Committee notes and commends the Public Service Commission for receiving clean audit outcomes for the 2020/21 financial year.

10.2 The Committee notes and compliments the PSC for achieving almost all set targets of the Annual Performance Plan for 2020/21 financial year under COVID-19 pandemic.

The PSC had 27 targets, 26 of which were achieved.

This represents 96 per cent achievement of targets.
The one that was partially achieved was payment of valid invoices within 30 days of receipt.

10.3 The Committee notes the PSC’s initiative on the legislative reform project intending to introduce to Parliament a Bill that will allow the Commission to be supported by a Secretariat that is independent of government in order to strengthen its independence and impartiality.
The Bill will further ensure that Commissioners are purely appointed based on merit, competence and experience in relation to the public administration, aligned to the NDP.

The NDP states that “the appointment of commissioners becomes a litmus test for the government’s commitment to retaining the independence of the Public Service Commission.
Moreover, the Bill seeks to extend the scope of the Commission of investigation, monitoring and evaluation to all organs of state including municipalities and State Owned Enterprises.

The PSC has reported that the PSC Amendment Bill has been submitted to the Minister for Public Service and Administration.

10.4 The Committee was not satisfied with the PSC not achieving a target of 100% on payment of valid invoices within 30 days of receipt.
However, the PSC wanted to improve its controls in this area and for the 2020/21 financial year by deciding to review its own standards to ensure that valid invoices are paid within 7-14 working days of receipt, especially due to the dire impact on small business.

However, the PSC did not meet the 30-days’ regulated period, let alone its revised 7-14 days’ target.
222 10.5 The Committee noted that the PSC continued to monitor Government Employees Pension Fund to ensure pension pay-outs were processed timeously for pensioners.

Retired public servants encounter challenges of delays in the pension pay-outs, therefore it is critically important that the PSC monitors the institution to ensure efficient and timeous payment of pension funds.
10.6 The Committee noted the PSC for monitoring and conducting inspection in schools across all nine provinces to assess the state of readiness by the Department of Basic Education to open schools.

The PSC further embarked on the fight against eradication of the bucket system and pit latrines in schools which was causing a grave health and safety risk to the pupils.
10.7 The Committee noted the performance of the PSC scrutinising 9 792 financial disclosures of SMS members in the public service and advice given to the Executive Authority on the outcome of the scrutiny processes.

The Committee noted a slight improvement in compliance with the requirement to submit financial disclosure forms.
10.8 In terms of the National Anti-Corruption Hotline, the Committee notes the initiative made by the PSC to establish a “one stop” mechanism for members of the public to report acts of corruption in the public service.

Due to COVID-19 and strict lockdowns, the PSC had these mechanisms to ensure that call centre agents worked both on-site and remotely.
10.9 The Committee notes with concern an increase in applications to review the PSC reports, placing a strain on the limited capacity in the PSC’s Litigation and Legal Service division.

11.
11.

RECOMMENDATIONS The following recommendations are proposed: 11.1 The Public Service Commission in collaboration with the Minister should fast track the finalisation of the draft Public Service Commission Amendment Bill, which aims at strengthening the independence of the Commission through operating with its own administration outside of the Public Service Act.

The Bill should be tabled timeously to Parliament, to allow the Committee ample time to process it.
223 11.2 The Public Service Commission should begin to engage with the Presidency and Parliament on the mechanisms to be used to measure individual Commissioners performance.

Performance mechanisms should address and assist Parliament as well as Provincial legislatures on the “renewable one additional term of a commissioner” as stipulated in Section 196(10).
Since each commissioner is responsible for a specific focus area, it would be easy for Parliament to assess performance on a yearly basis from reports issued and engagements with Parliament on such issues.

However, this assessment must be structured properly.

11.3 The PSC should prioritise the payment of valid invoices within the regulated period of 30 days.

The PSC should commit to its undertaking to pay all valid invoices within 7- 14 days.
11.4 The PSC should urgently improve on its Senior Management Service vacancy rate at 12 per cent, as this affects the strategic and policy component of the institution, as well as service delivery.

11.5 The PSC should strengthen existing mechanisms by being proactive in investigating suspected corrupt officials using information received from the Anti-Corruption Hotline and Financial Disclosure Forms.
The PSC should recommend to the Department of Public Service and Administration once investigations are concluded that officials who are found to be corrupt, especially regarding doing business with the State, cannot work for the public service again.

12.

CONCLUSION The PSC was able to spend almost its entire allocated budget whilst achieving almost all its targets, which is commendable.

Its performance during the year under review was thus proportionate to budget spent.
Accountability within the PSC has improved with responsible leadership.

As much as it is proper to fill vacancies at the SMS level, balance must be maintained between filling vacancies and the bulk of voted budget going to compensation of employees.

Report to be considered 224 8.


BUDGETARY REVIEW AND RECOMMENDATIONS REPORT (BRRR) OF THE PORTFOLIO COMMITTEE ON PUBLIC SERVICE AND ADMINISTRATION REPORTING ON THE NATIONAL SCHOOL OF GOVERNMENT ANNUAL REPORT FOR THE 2020/21 FINANCIAL YEAR, DATED 24 NOVEMBER 2021 1.
BACKGROUND The Portfolio Committee on Public Service and Administration (hereinafter referred to as the Portfolio Committee) having considered the directive of the National Assembly, which is in line with Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.

9 of 2009 to consider and report on the Annual Report of the National School of Government (NSG), reports as follows: 2.
INTRODUCTION Parliament represents the people of South Africa and it has a responsibility to keep the government accountable to the people.

Parliament derives its mandate from the Constitution of the Republic of South Africa.
According to Section 55 (2) of the Constitution “the National Assembly must provide for mechanisms (a) to ensure that all executive organs of state in the national sphere of government are accountable to it; and (b) to maintain oversight of the exercise of national executive authority, including the implementation of legislation and any organ of state.

Parliament has developed and approved its Strategic Plan for the 06th democratic Parliament.
The 6th Parliament reaffirmed its commitment to law making, oversight and public participation but also to its vision of being an activist and responsive people’s Parliament that improves the quality of life of South Africans and ensures enduring equality in our society.

The strategic objectives of the Portfolio Committee are informed by five strategic goals of Parliament.
The functions of the Portfolio Committee on Public Service and Administration are as follows: 1 225 • Participating and providing strategic direction in the development of the legislation and thereafter passing the laws.

• Conducting oversight over the Executive to ensure accountability to the Parliament towards achieving an effective, efficient, developmental and professional public service.
• Conducting public participation and engaging citizens regularly, with the aim to strengthen service delivery; oversee and review all matters of public interest relating to the public sector.

• Monitoring the financial and non-financial aspects of departments and its entities and ensuring regular reporting to the Committee, within the scope of accountability and transparency.

• Supporting and ensuring implementation of the Public Service Commission (PSC) recommendations in the entire public service.
• Participating in international treaties which impact on the work of the Committee.

In March 2020, South Africa was among countries worldwide experienced and seized with managing the outbreak of the Coronavirus 2019 (hereafter referred to as COVID-19), which has been declared a global pandemic by the World Health Organisation.

The emergence of the COVID-19 pandemic has had a devastating effect on the health, economic and social systems of most countries around the globe.
In South Africa contexts, its impact has already been observable in the resources of government and has put a strain in its delivery capacity and the country’s ability to meet its NDP priorities.

Government has during 2020/21 financial year, cut budgets of most of state institutions to fund health programmes aimed at fighting the spread of the COVID-19 pandemic in the country.
On November 10, 2021, the Committee considered the Annual Report for 2020/21 financial year of the National School of Government for the Budgetary Review and Recommendations reports.

2 226 3.

PURPOSE OF THE BUDGETARY REVIEW AND RECOMMENDATIONS REPORT In terms of Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No.
9 of 2009 the National Assembly, through its Committees, must annually compile Budgetary Review and Recommendations reports (BRRR) that assesses service delivery and financial performance of departments and may make recommendations on forward use of resources.

The BRRR is also a source document for the Committees on Appropriations when considering and making recommendations on the Medium Term.
The Money Bills Amendment Procedures and Related Matters Act, section 5 (3) highlights focus areas on the budgetary review and recommendation report as: • Providing an assessment of the department’s service delivery performance given available resources.

• Providing an assessment of the effectiveness and efficiency of the departments use and forward allocation of available resources; and • Including recommendations on the forward use of resources.
3.1 Method The Portfolio Committee on Public Service and Administration compiled the 2020/21 BRRR using the following documents: • The National Development Plan: Vision for 2030.

• Medium Term Strategic Framework 2019 - 2024.

• State of the Nation Address 2020/21.

• Strategic Plan of the NSG.

• National Treasury (2021) 4th Quarter Expenditure 2020/21 Financial Year.

• Annual Performance Plan (2020/21) of the NSG.

• Annual Report (2020/21) of the NSG.


• Auditor-General South Africa’s outcomes of audit findings 2020/21.

3 227 • The Portfolio Committee also met with the leadership and management of the NSG.

4.

OVERVIEW OF THE NATIONAL SCHOOL OF GOVERNMENT The National School of Government (NSG) draws its mandate from the Constitution, and with particular reference to 195(1) (h), which stipulates that: “good human resource management and career-development practices, to maximise human potential, must be cultivated”.
The applicability of this, and the other values and principles to the three spheres of government, organs of state and public enterprises indicates the requisite depth and the reach of the NSG in order to fulfil this constitutional mandate.

The NSG has to ensure that all of the basic values and principles are inculcated into the value system and performance of all public servants and representatives through education, training and development (ETD) initiatives.
It does so through its curriculum design, development and delivery approach with the practical application of participatory, people-centred methodologies and the application of indigenous facilitation and learning techniques during the ETD initiatives, in building a caring ethos and citizen-centred service delivery focus amongst public servants.
This approach consciously focuses on the application of the principles and values of the Constitution and the realisation of the public administrative justice to all whom we serve.

5.

LEGISLATIVE MANDATE Section 197 of the Constitution provides for a public service within public administration, which must function, and be structured, in terms of national legislation, and which must loyally execute the lawful policies of the government of the day.
The NSG, as a national public service department, thus draws its mandate from national legislation – the Public Service Act, 1994 (Proclamation 103 of 1994), as amended.

This is the core mandate which establishes the NSG for it to fulfil a function of providing training or causing the provision of training to occur within the public service.
Accordingly, section 4 of the Act provides the following mandate: (1) There shall be a training institution listed as a national department (in Schedule 1 of the Act).

(2) The management and administration of such institution shall be under the control of the Minister (Public Service and Administration).
4 228 (3) Such institution, shall provide such training or cause such training to be provided or conduct such examinations or tests or cause such examinations or tests to be conducted as the Head of the institute may with the approval of the Minister decide or as may be prescribed as a qualification for the appointment or transfer of persons in or to the public service.

The School may issue diplomas or certificates or cause diplomas or certificates to be issued to persons who have passed such examinations.
Whilst this piece of legislation empowers the NSG to fulfil its mandate, the limitation of the Public Service Act is that it is applicable to the national and provincial spheres of government.

Another piece of enabling legislation - Public Administration Management Act, 2014 (Act No.

11 of 2014) - gives effect, inter alia, to the progressive realisation of the values and principles governing public administration across the three spheres of government.

6.
6.

STRATEGIC GOALS OF THE NSG The NSG set five strategic outcomes for achievement over the five-year period.

The performance of these outcomes in this financial year include the following: 6.1 Outcome 1: Functional and integrated institution The objective of this outcome is to ensure that the NSG has the appropriate resources, systems and processes to enable the integrated delivery of Education, Training and Development (ETD) intervention.
The performance of the outcome is measured through some of the following outputs: • Implementing an operations management systems and a total quality management system.

• Implementing ICT business solutions.

• Ensuring effective financial management systems.

• Positioning the brand of the NSG.

• Effective research and knowledge management for ETD.
5 229 6.2 Outcome 2: Competent public servants who are empowered to do their jobs The objective of the outcome is to ensure that public servants are empowered to do their jobs through the ETD interventions.

The performance of the outcome is measured through some of the following outputs: • Providing ETD opportunities to learners through compulsory and demand-led programmes and induction programmes.

• Completing skills assessment reports on training needs for relevant ETD interventions.
• Developing courses/ programmes/ interventions responsive to identified skills gaps and government priorities.

6.3 Outcome 3: Sustainable partnership and collaboration to support ETD interventions The objective of the outcome is to ensure that trainees satisfied that NSG’s ETD interventions are responsive to government priorities and performance improvement in the public sector.
The performance of the outcome is measured through some of the following outputs: • ETD interventions offered to public servants.

• Active online interventions.

• Developing an online course/programme on how to deal with all forms of discrimination.

7.

NATIONAL SCHOOL OF GOVERNMENT PROGRAMME PERFORMANCE 7.1 Budget Allocated and Expenditure 2020/21 The School spent R221.6 million or 97.4 per cent of its 2020/21 budget allocation of R227.4 million as at the end of March 2021.
This represents an increase of 17 per cent in actual expenditure when compared to the 2019/20 financial year.

The main cost driver under this Vote was Programme 2: Public Sector Organisational and Staff Development (R125.5 million), followed by Programme 1: Administration (R101.8 million).

The increase in total budget was due to funding from the Department of Public Works and Infrastructure (DPWI) in relation to the impact of COVID-19 on the Trading Account.

A saving of 2.6 per cent, i.e.


R5.8 million, was realised at the end of the financial year.

The saving came as a result of abandoned contact 6 230 learning due to the number of learners allowed at a venue and social distancing.

The online option was later used to ensure that training still happened albeit minimally.

The approved NSG staff establishment is 230, with 209 of these positions filled and 21 vacant as at March 2021.

This translates to 91 percent of posts filled.


The vacancy rate increased from 8.2 percent in 2019/20 to 9.1 percent by the end of 2020/21.

Out of 209 total employees, 59 percent (123) were females as at end of 2020/21.

The School continues to meet the 2% target for employment of people with disabilities, representing 2.4% of employees.

The NSG is also doing well in terms of women at SMS as 56 percent of SMS members are women.
During the year under review, the NSG appointed a total of eight employees, with one internal member promoted to another position.

The NSG provided opportunities for internship, benefiting two (2) graduate interns in the financial year.

Appropriation per programme (R’000) Programme R’000 Final appropriation Expenditure Variance Virement Percentage 1.

Administration 101 828 96 024 2.


Public Sector Organisational and Staff 125 579 125 579 Development Total (NSG) 227 407 221 603 - - - - - - 94.3% 100.0% 97.4% NSG: Annual Report 2020/21 7.2 PROGRAMME PERFORMANCE The NSG comprises two programmes, which are as follows: 7.2.1 Programme 1: Administration This programme reported an expenditure of R96.0 million (94.3 per cent) of the programme’s available budget as at the end of the fourth quarter of 2020/21.
The main cost drivers were: Compensation of Employees (R55.8 million), due to salary adjustments; Goods and Services (R38 million).

Programme 1 had 14 targets, eight of which were achieved as planned, whilst the remaining six were not achieved.

This translates into 57 per cent achievement.

The achievement of the 7 231 planned targets has contributed to the outcome at the NSG.
The performance targets that were not achieved in this financial year can be attributed to factors related to the COVID-19 pandemic, for example, activities that required contact with clients.

Furthermore, the filling of some key positions and the necessary capacity to fulfil these performance targets have also contributed to the under-performance.
Total Quality Management Framework was developed, but not fully implemented because it required additional capacity to be fully achieved, which was impossible due to 10 per cent of staff working remotely.
Training programmes’ targets such as Nyukela, which targets senior management, and Ethics, which is for everyone from junior, middle and senior management were affected and had to be carried out online, after the Minister issued media statements during the national lockdown encouraging public servants to register for online courses with the NSG.

In July and August 2020, the NSG experienced a cyber-attack which impacted on the functionality of the School.
However, sufficient internal support was provided in ensuring that the NSG could recover from the cyber-attack to enable business continuity and delivery of services.

The NSG has prioritised women, youth and persons with disability, as its employment equity statistics reflect a fair representation of 55.8 per cent of women employed at Senior Management Service level, 56.1 per cent of youth employed and 2.4 per cent of persons with disabilities employed at the NSG.
7.2.2 Programme 2: Public Sector Organisational and Staff Development The Public Sector Organisational and Staff Development (Programme 2) is responsible for facilitating transfer payments to the Training Trading Account, which provides education, development and training to public sector employees.

This programme reported actual expenditure of R125.5 million or 100 per cent of its 2020/21 budget allocation of R125.5 million as at the end of March 2021.
The main cost driver is the Training Trading Account (TTA), which is the operational account of the Programme as it pertains to the training and development mandate of the School.

The programme had a total of 21 planned targets for the financial year, 11 of which were achieved whilst 10 targets were not achieved as planned.

This translates into 52 per cent achievement.


The School ascribes unachieved targets such as Nyukela and Ethics to slow uptake of training due to COVID-19 restrictions for persons attending training, which negatively impacted the number of public servants trained for the year.

2 387 public servants, instead of the 7900 targeted, were trained on mandatory courses.
6 instead of 10 skills 8 232 assessments reports were completed and shared with all internal stakeholders to address training needs and ensure uptake of NSG offerings.

The achievement was in response to the outcomes for the programme, which is the development of courses interventions responsive to skills gaps and needs.
The NSG held Thought Leadership seminars and platforms in partnership with public and private institutions, which enabled recognition of the NSG in the public domain, developing public servants and executives which enabled the response to a sustainable partnership and collaborations to support ETD interventions.
The NSG, in response to prioritising women, youth and persons with disabilities, developed an online course “Leading change by Championing Gender Equality, which contributed to empowering and developing middle and senior management, as there was an increase in Gender-Based Violence (GBV) during the lockdown period and the implementation of the course enabled awareness and consciousness of public servants.
Delivery on targets under this programme is acceptable under the circumstances, which were posed by the pandemic across the public service and the country.

It was impossible to have contact classes due to the numbers allowed in venues, as well as IT challenges imposed by a significant number of employees working from home.

8.

AUDITOR-GENERAL 8.1.

Audit Opinion The Auditor-General presented the School with an unqualified audit opinion for the 2020/21 financial year.
This means that the School’s financial statements represent fairly, in all material respects, its financial position as at 31 March 2021.

The School’s financial performance and cash flows for the 2020/21 financial year were in accordance with the Modified Cash Standard prescribed by the National Treasury and the requirements of the Public Finance Management Act (PFMA), Act No.

1 of 1999.
1 of 1999.

The Auditor-General raised the following concerns: 8.1.1 Compliance with legislation Management did not ensure that the entity comply with applicable legislation.

Material findings on compliance with legislation were raised in the year under review.

8.1.2 Internal risks 9 233 The entity’s internal processes and systems did not prevent material non-compliance on revenue management and procurement and contract management from occurring.

9.
9.

OBSERVATIONS AND KEY FINDINGS The Committee made the following observations: 9.1 The Committee notes and commends the National School of Government for receiving clean audit outcomes for the 2020/21 financial year.

However, the Committee notes remarks by the Auditor-General that the overall outcomes in the portfolio have slightly regressed when compared to the prior year.

9.2 The Committee notes that the NSG achieved 19 performance targets of a total of 35 targets in the 2020/21 financial year.
9.3 The Committee notes that the impact of the global COVID-19 pandemic and the restrictions of the national lockdown severely affected the organisational performance in 2020/21 financial year.

The performance of the NSG was also impacted by the budget reductions implemented by the National Treasury, which required reprioritisation and an inability to fill key vacancies.

9.4 The Committee notes that the vacancy rate at Senior Management Service (SMS) was at 14.6 per cent.
This is not the aggregate percentage across employee levels, just at the SMS level.

The vacancy rate needs urgent attention in the subsequent financial year.

9.5 The Committee notes that the reconfiguration of the NSG and delays in advertising and filling of Deputy Director-General (DDG) and SMS posts impacted on the filling of SMS posts.

The NSG ensured that acting appointments were in place during this transitional period.
The NSG also filled SMS posts through transfers from supernumerary staff in the public service.

The total vacancy rate for the institution was 9.1 per cent.

9.6 In light of the disruptive COVID-19 pandemic, the Committee further notes that the NSG had to review its business model and adopted a training response plan.
The Committee acknowledges the effort by the School to develop a response plan with the aim of 10 234 increasing online and virtual learning offerings, securing licensing for virtual tools and finding other alternative features of delivery on its mandate.

9.7 Due to the impact of COVID-19 pandemic, the NSG has developed a total of 17 online courses and provided enrolments to 54616 learners in the 2020/21 financial year.
17 589 learners enrolled in Getting Started with eLearning, which is not an accredited course but preparation of officials for online learning.

9.8 The Committee stressed the importance of the School developing a self-sustainable funding model.

The Committee cautioned the NSG that R48 million secured and transferred from the Department of Public Works would not resolve future budget challenges of the School.
The NSG has to devise strategies of collecting revenue through training, education and development offered to the public servants.

9.9 The Committee notes a low intake of critical training courses such as ethics, performance management and financial management.

The School was urged to ensure that senior managers in the public service enrol for these courses as they are mandatory.

9.10 The Committee notes and commends the NSG for the development of the Framework of Professionalising the Public Service.
9.11 The Committee compliments the School for the way it handled the cyber-attacks to minimize harm which put the operational systems at risk.

10.

RECOMMENDATIONS The following recommendations are proposed: 10.1 The School together with the Department of Public Service and Administration should continue to engage the National Treasury in exploring alternative funding methods to ensure it is self-sustainable in the future years.
The School should develop a fully-fledged sustainable Funding Model to maintain self-generated income through the Training Trading Account.

10.2 The School should improve on the online solutions to ensure that the uptake of training programmes and the training targets are not affected by lockdown levels imposed by Government.

11 235 10.3 The School should devise a strategy to address challenges regarding internal controls, as reported by the Auditor-General.
10.4 The National School of Government should continue to devise a strong risk management strategy to protect itself against cyber-attacks.

10.5 The School should urgently improve on its Senior Management Service vacancy rate at 14.6 per cent, as this affects the strategic and policy component of the institution, as well as service delivery itself.

10.6 The School must improve on complying with the target of reducing the eventuality of irregular expenditure from 50 per cent to zero per cent.

11.
11.

CONCLUSION The National School of Government continues to rollout courses and training programmes relevant to government officials from entry level to senior management and the Executive.

Education, Training and Development programmes offered by the School assist public officials to enhance performance and contribute towards a capable and professional public administration.

The Funding Model should be prioritised by the School in order to keep it afloat.
Accountability within the School has improved immensely with responsible leadership.

There must, however, be proper internal controls regarding procurement and contract management processes in the institution.

It can be concluded that the School might have overspent its budget if it would spend 97.4 per cent of its 2020/21 budget allocation of R227.4 million on 54% of targets.

This is what the School should look into going forward.

Report to be considered 12 236 9.


BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON THE 2020/21 ANNUAL REPORT OF THE DEPARTMENT OF MILITARY VETERANS (DMV), DATED 24 NOVEMBER 2021.
The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered the financial and service delivery performance of the Department of Military Veterans (DMV) for the 2020/21 financial year on 10 November 2021, reports as follows on the report considered and adopted on 24 November 2021: 1.

INTRODUCTION 1.1.
INTRODUCTION 1.1.

Description of core functions of the Department The DMV derives its mandate from the Military Veterans Act (No 18 of 2011), which requires it to provide national policy and standards for socio-economic support to military veterans and to their dependents, including benefits and entitlements to help realise a dignified, unified, empowered and self-sufficient military veterans’ community.
1.2 Mandate of Committee The Portfolio Committee on Defence and Military Veterans (PCODMV) is mandated to oversee the DMV to ensure that the Department fulfils its mandate through the monitoring of the implementation of legislation and adherence to policies, such as the Military Veterans Act and the Military Veterans Benefits Regulations and other related legislation.

It must scrutinise legislation which supports the mission statement of Government; the budget and functioning of DMV.
1.3 Purpose of the BRR Report Section 5 (2) of the Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) allows for each Committee to compile a Budgetary Review and Recommendation Report (BRRR) which must be tabled in the National Assembly.
Section 5(3) provides for a BRRR to contain the following: a) an assessment of the department’s service delivery performance given available resources; b) an assessment on the effectiveness and efficiency of departments use and forward allocation of available resource; and c) recommendations on the forward use of resources.
In October of each year, parliamentary portfolio committees compile a BRRR that assess performance given available resources; evaluates the effective and efficient use and forward allocation of resources; and makes recommendations on the forward use of resources.

In 2021, this process was shifted to November given the impact of the Municipal elections on the parliamentary programme.
The BRRRs are also source documents for the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS).

The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.

The FY202021 saw the beginning of the Coronavirus (COVID-19) pandemic, with a hard lockdown declared on 26 March 2020 to contain the spread of the disease.
The impact of the pandemic and the necessitated government response, were significant on the DMV, as evidenced by especially the reasons for it not achieving some of its annual performance goals 1 237 1.4 Methodology in compiling the report The Report is compiled from the various activities of the Committee.

It is inclusive of the Committee’s meetings, reports on budget votes, strategic plans, annual performance plans and annual reports, as well as previously published Committee reports.
1.5 Dates of oversight visits The PCODMV did not conduct an oversight visit to facilities of the DMV in 2020/21.
1.6 Information used to compile the Report Besides information from oversight visits, other information used in the assessment of the service delivery and financial performance included the: • The National Development Plan 2030; • The 2020 Estimates of National Expenditure; • The 2020 State of the Nation Address; • Committee reports on the 2020/21 Budget Hearings, Strategic Plans and Annual Performance Plans reports; and • The DMV Annual Report 2020/21.
• The Auditor-General of South Africa (AGSA) Report on the DMV.

1.7 Structure of the Report This Report comprises the following sections: • Section 1: An introduction which sets out the mandate of the Committee, the purpose of this report.

• Section 2: An overview of the key relevant policy focus areas.

• Section 3: An overview and summary of previous key financial and performance recommendations of Committee (2019/20).
• Section 4: A broad overview and assessment of financial performance of the Department for 2020/21.

• Section 5: Overview of service delivery and performance • Section 6: Key Committee findings.

• Section 7: Key recommendations.

2.


OVERVIEW OF THE KEY RELEVANT POLICY FOCUS AREAS 2.1 State of the Nation Address 2020 President Cyril Ramaphosa, during his SONA on 13 February 2020, made the following remarks that can be related to the mandate and activities of the DMV: • • “We resolved to cure our country of the corrosive effects of corruption and to restore the integrity of our institutions.” This can be related to the DMV’s stated intention to address any corruption and fraud in its midst.
“Secondly, our history demands that we should improve the education system and develop the skills that we need now and into the future.” As two of the primary benefits, educational support and skills development are being prioritised by the Department.
2 238 • • • “We are duty bound to improve the conditions of life for all South Africans, especially the poor” It is especially the Social Relief of Distress (SRD), a Ministerial priority that is administered by the Department, assisting military veterans in distress with this benefit.
“Given the key role that small businesses play in stimulating economic activity and employment – and in advancing broad-based empowerment – we are focusing this year on significantly expanding our small business incubation programme.” The businesses access to empowerment opportunities for military veterans as well as the annual target of paying invoices within 30 days are examples in this regard.
“This year, we will take a significant step towards universal access to quality health care for all South Africans.” The health benefit for military veterans is underlined against the background of ageing military veterans and the assistance and support of the SA Military Health Services (SAMHS) in this regard is noted.

2.2.
2.2.

DMV contributions towards the National Development Plan (NDP) and Medium-Term Strategic Framework (MTSF) (Outcomes) The Annual Report states, in contrast to previous years, that the Department does not directly contribute to the Medium Term Strategic Framework (MTSF) priorities 2019 - 2024 and the National Development Plan (NDP) 2030, but that it has its own priorities that are linked with the overall government priorities.
It lists the following priorities: • PRIORITY 1: Strengthening governance and oversight protocols to give effect to the Act.

This priority refers to its collaboration with the Internal Audit Function, the Audit Committee, the Auditor- general.

It states that this has helped with audit skills transfer and continual improvement of the internal control environment.

• PRIORITY 2: To provide comprehensive support services to military veterans and where applicable, to their dependents.
The Education, training and development benefit saw 607 military veterans and their dependents approved for these interventions.

2 779 bursaries were provided but the planned target was reduced from 7 400 to 3 500 due to budget cuts and as a result of the Covid-19 pandemic.

Access to health care: Target was revised downwards from 19 000 to 18 5000 due to Covid-19.
A total of 536 military veterans were authorised to access health care services, 493 military veterans and their dependents received counselling, but this target was also reduced from 1 000 to 400.

Housing: 192 houses were allocated in various provinces but target was reduced from 710 to 355, and it is also reported that 26 mortgage bonds in distress were rescued.
Facilitation of employment placement: 25 opportunities were facilitated and 45 military veterans’ companies were provided with facilitation or advice on business opportunities.

Public transport and pension benefits: Planned targets were discontinued for both benefits due to Covid-19 pandemic budgets cuts, and the Department is in process of finalising the policies for these benefits.
Compensation benefit: Only 25 military veterans received this benefit due to Covid and the non-availability of a SAMHS medical panel to carry out compensation assessments.

Burial support: 379 military veterans’ families were provided with this support and 99% of payments were paid within 90 days.

3 239 • PRIORITY 3: Promote empowerment programmes for military veterans and dependants The DMV provided skills programmes and related activities in the period under review.
Communications initiatives during the pandemic include: ü Payment of outstanding tuition and school fees and updates on developments in this regard ü Access of benefits during lockdown ü Information on unemployment grant top-up and Stakeholder engagement on empowerment of military veterans with Gauteng Province.
• PRIORITY 4: Promotion of military veterans’ heritage as well as memoralisation and honouring Two memorial lectures were coordinated in response to the necessity to recognise the restoration of dignity and appreciation of military veterans to the country’s freedom and nation building.

• PRIORITY 5: Maintain the credibility and security of the national military veteran database 1 085 military veterans were verified and captured on the database.
The implementation of an accurate, reliable, and secure Military Veterans’ Integrated Database Benefits Management System (DBMS) remains a core objective of the Department.

Covid-19 delayed progress to develop and implement the Integrated DBMS, while the Department is partnering with the State Information Technology Agency (SITA) in this regard.
2.3 DMV’s outcomes, outputs, inputs and activities DMV Outcomes This is said to be embedded in the vision of the Department, and this vision is further denoted by “improved and sustainable livelihoods for military veterans’ community.” DMV Output The Outputs are key drives and is listed as: • Ministerial and Strategic Direction • Socio-economic support services • Empowerment and Stakeholder Management.
DMV Activities The above outputs will be achieved through the following activities: • Provision of corporate support services for effective and efficient information management • Provision of Executive and administrative support services to the Executive Authority priorities • Provision of risk governance, legal frameworks and management services • Accountable strategic budgeting systems, processes and services • Audited DMV affairs.

4 240 2.4.
Strategic Overview of DMV Strategic Plan and Annual Performance Plan 2.4.1 Vision, Mission and Values The DMV’s vision is “a dignified, unified, empowered and self-sufficient military veterans’ community, while its mission is ‘to facilitate delivery of benefits and coordinate all activities that recognise and entrench the restoration of dignity and appreciation of military veterans to our freedom and nation building.” The values are listed as: • Integrity • Compassion • Honesty • Professionalism • Commitment and accountability 2.4.2 Strategic Plan 2020- 2025 The Department’s Strategic Plan (2020 - 2025) outlines its Vision namely “A dignified, empowered and self- sufficient Military Veteran’s community,” while its Mission is “to facilitate delivery and coordinate all activities that recognise and entrench the restoration of dignity and appreciation of the contribution of Military Veterans to our freedom and nation building.” It further outlines the Service Charter that underpins the delivery of service to military veterans, which emphasises inter alia service standards, teamwork, discipline, excellence, ethics, openness and transparency.
It lists the legislative and other mandates with the primary source being the Military Veterans Act (No.

18 of 2011).

The various planned policy initiatives are also recorded which are in the process of being finalised and/or approved.

2.4.3.

Annual Performance Plan (APP) Despite the Annual Report stating that the Department does not directly contribute to the MTSF and NDP, the 2020 APP did list the contributions that the DMV will make to the NDP.
In brief, they contribute to Chapter 3: Economy and Employment through Education, training and skills development; Chapter 8: Transforming Human settlement through partnerships with Department of Human Settlement (DHS) through building houses; Chapter 9: Improving Education, Training and innovation by providing quality basic education through the provision of comprehensive support services to Military Veterans; Chapter 10: Promoting Health by providing comprehensive support services to Military Veterans and where applicable, to their dependants; Chapter 13: Building a Capable State through being an employer for both military veterans and their dependants; Chapter 14: Promoting Accountability and Fighting Corruption through providing an efficient, effective and development oriented public service; and Chapter 15: Transformative society and uniting the country through promoting social cohesion and righting the wrongs of the past; promoting decent employment through inclusive growth.
3.

SUMMARY OF PREVIOUS RECOMMENDATIONS OF THE COMMITTEE 3.1.

BRRR Recommendations for DMV for FY 2019/20 Based on its analysis and overview of the 2019/20 Annual Report, the Committee made the following preliminary recommendations: a.
The Committee recommends that the Department should interrogate the setting of the target on training and skills development and align it with the current realities as well as enhancing its effort to increase the number of beneficiaries to assist with enabling military veterans to be less reliant on the Department.

5 241 b.
5 241 b.

The Committee felt that the underperformance in Programme 2: Socio-economic Support Management goes to the heart of the challenges in the Department and recommends that the DMV should provide it with concrete plans on how it will unlock these challenges besetting the main service delivery programme.

The Committee expects the Department to provide feedback on these action plans on a quarterly basis.
c. Regarding the under-performance by the sub-programme Strategic Planning, Policy Development and Monitoring and Evaluation, the Committee stresses the importance of this sub-programme being fully functional and providing the policy guidance and monitoring as mandated to ensure the effective overall strategic direction of the Department.

d. The Committee took notes of the strides made to finalise the capturing and verification of the Database.
It recommended that the DMV should reinforce actions to finalise the Database as a matter of urgency given that a verified Database facilitate effective planning.

The DMV should report on progress with the Database at scheduled meetings.
e. The Committee recommends that the Department provide it with the measures it has taken to address the challenges in Programme 3, and to indicate whether these measures have been effective as it concerns core activities such burial support; the erection of memorial sites; and training and skills development.
f. The Committee recommends that the leadership of the Department should pay particular attention to the issues raised by the Audit Committee and the Auditor-General, and provide it with a progress report in this regard since the start of the current financial year (2020/21).
g. The Committee recommends it should be briefed by the Department on progress made to address the Leadership challenges, and especially how it is implementing Consequence Management since the advent of the new financial year (2020/21), given that the Committee itself raised its concerns about the latter.
h. The Committee recommends that the Department should finalise and approve the pension and public transport policies expeditiously to deliver on these benefits and that it should brief it on progress made since the start of the new financial year.

i.

The Committee recommends that the Department should brief the actions taken and the progress made to review the organogram and fill the vacancies and especially the appointment of a permanent Director- General for the Department.

j.
j.

The Committee recommends that the Department briefs it fully on the Skills Audit exercise given that close to half a million rand has been spent on this exercise.

k. The Committee recommends that the issue of access to nearby private hospitals via sickbays and military hospitals should be enhanced, especially the speeding up of processes to authorise treatment for specialised services based on referrals by military health practitioners.
l. The Committee recommended that the Department should, on a quarterly basis, inform it on the status of legal claims against the Department, including the fiscal implications of each claim.

m. It was recommended that the DMV should keep the Committee abreast on their measures to speed up housing for military veterans against the background that there appear to be a lack of eagerness on the part of provincial housing departments, to request such funding from the DMV.
n. Given the Committee’s concern around the illegal occupation of houses earmarked for military veterans, it stressed the importance of addressing this situation and expect quarterly feedback in this regard.

4.
4.

OVERVIEW AND ASSESSMENT OF THE 2020/21 FINANCIAL PERFORMANCE 4.1 Budget Allocation and Expenditure for 2020/21 Vote 26: Military Veterans’ allocation in the Estimates of National Expenditure (ENE) for the FY2020/21 received a total main appropriation of R683.1 million for the 2020/21 financial year.

The allocation was adjusted downwards during the mid-year adjustment period and decreased to R480.3 million (R202.8 million less).
The DMV managed to spend R429.2 million or 89.4% with an underspending of R51.0m or 10.6% of 6 242 the total allocated budget.

This against the previous overall spending of R476.
9 million or 73% of the total DMV allocation of R652.6 million Overview of Budget Allocation and Expenditure for 2020/21 Programme R’000 Final Actual Variance Percentage Appropriation Expenditure Administration Socio-Economic Support 142 051 235 392 Empowerment and Stakeholder Management 102 899 Total 480 342 134 767 224 425 70 070 429 342 7 284 10 967 32 829 51 079 Spent 95% 95% 68% 89% The Table above outlines that the Department spend more of its budget in the FY2020/21 (89%) than the 73% in the previous financial year.
The main contributor to the underspending is Programme 3: Empowerment and Stakeholder Management where only 68% or R70.070 million was spent against an allocation of R102.

899 million.

National Treasury approved the following virements and shifts: * * * R400 000 within Programme 1 (Administration) under Goods and services to accommodate a shortfall under Transfers and Subsidies (Households).
R15 million within Programme 2 (Socioeconomic Support) under Households (Education support) to Goods and services (contractors).

R3.3 million within Programme 3 (Empowerment and Stakeholder Management) under Goods and services to Transfers and subsidies (Households).
Quarterly spending patterns During the 2020/21 financial year, the spending patterns per quarter has been as follows: • At the end of the First Quarter (June 2020), the DMV spent R44.6 million (6.5%) of its main appropriation, which was significantly lower than projected expenditure.

• At the end of the Second Quarter (September 2020), the DMV spent R123.0 million (22.5%) of its main appropriation, which was lower than projected expenditure.
• At the end of the Third Quarter (December 2020), the DMV spent R237.5 million (49.5%) of its adjusted appropriation, which was 12.9% lower than projected expenditure.

• At the end of the Fourth Quarter (March 2021), the DMV spent R429.3 million, which represents underspending of R51.1 million (10.6%) against the available budget.

This should be compared with an underspending of R175 348 000 or 26.9% in the previous financial year.
Programmes: Budget Allocation and Expenditure for 2020/21 This section briefly highlights the budgetary overview of the three programmes of Vote 26, referring to the different sub-programmes, comparing its final appropriation to the actual expenditure and indicating whether there was an over or under expenditure.
7 243 SUB PROGRAMME Final Actual (Over) /under Programme 1: Administration Management Corporate Service Financial Administration Internal Audit Appropriation expenditure expenditure 14 879 (12 469) 14 261 (12 469) 618 (0) 66 857 (72 027) 66 370 (71 419) 22 802 (22 211) 20 010 (22 211) 11 069 (8 655) 9 404 (8 061) 487 (608) 2 792 (-) 1 665 (594) 956 (1 311) 766 (1) 7 284 Strategic Planning, Policy development and M&E 12 361 (11 660) 11 405 (10 349) Office Accommodation Total: Sub-programmes 14 083 (13 563) 13 317 (13 562) 142 051 134 767 The R2.292 million underspending in the Financial Administration sub-programme was noted against the background that in the previous financial year it succeeded to spend all funds allocated to the sub-programme.
While the under-capacitation of the Internal Audit Function is the main reason for the underspending of R1.665 million, the Committee has on several occasions in the past impressed on the Department the importance of this function to the overall functioning of the Department, especially as it relates to audit-related issues.

Also of note was the subprogramme Strategic Planning, Policy Development and Monitoring and Evaluation which underspent.
This against the background that the Department has been struggling with issues of Monitoring and Evaluation and especially Policy Development regarding for instance the pension and public transport benefits.

Importantly, the R7.3 million or 5% underspending in the programme was mainly attributable to the planned office move which did not materialise.

As DMV faces several challenges with the current headquarters building, a progress report in this regard is required.
Programme 2: Socio- Economic Support SUB PROGRAMME Final Appropriation Actual expenditure Variance Database and Benefits Management 8 174 (8 678) 8 004 (6 361) 170 (2 317) Health care and wellness support 113 686 (124 705) 112 432 (124 702) 1 254 (3) Socio economic support management 113 532 (203 389) 103 989 (203 597) 9 543 ((208)) Total For Subprogrammes 2325 392 224 425 10 967 This is the main service delivery programme, and the fact that the socio-economic support management sub- programme underspent with almost R10 million is very concerning.
This subprogramme is supporting the delivery of benefits such as education, public transport, pension and housing - but these annual targets have been missed, despite some being downward adjusted.

It is explained that the underspending of R11 million in the programme was mainly attributable to the delayed implementation of the DMV Database Management system; and the saving on Compensation of Employees (CoE) due to vacant senior positions.
The underspending of the healthcare and wellness support sub-programme similarly relates to benefits that are very much in demand by ageing military veterans.
Programme 3: Empowerment and Stakeholder Management SUB PROGRAMME Final Appropriation Actual Variance expenditure Provincial Office and Stakeholders Relation 39 785 (55 968) 28 748 (36 002) 11 037 (19 966) Empowerment and Skills Development 40 548 (73 2060 27 488 (18 659) 13 060 (54 547) Heritage, Memorial, Burial and Honours 22 566 (20 556) 13 834 (14 585) 8 732 (5 971) Total:Subprogrammes 102 899 70 070 32 829 8 244 This is one of the worst performing programme which underspent by R23.8 million (32%), which is mainly related to the inability to spend on planned conferences due to Covid-19.
It is in particular the subprogramme Empowerment and Skills Development, with an underspending of R13 million, that is of concern, as it is responsible for the provision of skills development and related activities that can assist to make military veterans less reliant on the Department.

It is also noted with concern that the Provincial Office and Stakeholders Relation subprogramme again underspent.
4.2 Financial statements Unauthorised expenditure: Similar to FY2019/20, the Department did not incur unauthorised expenditure during the year under review.

Fruitless and wasteful expenditure and the amounts: This was mainly related to interest payable to the Government Employees Pension Fund (GEPF) with an amount of R1.3 million as well as R39 000 on “No shows and traffic fines” where an internal debt collection process was in progress.
The DMV plans to have workshops and awareness campaigns to prevent re-occurrence in this regard.

Irregular expenditure: The first amount is R235 000 related to “the potential award of a bid to an incorrect supplier”, while the second amount of R228 000 related the remuneration of the audit committee members.
Concern was expressed at the statement of an incorrect supplier and it was whether the bid has indeed been awarded, and whether consequence management followed in this case, if it was required, an issue raised by the AGSA.
The Office stated that “it was unable to obtain sufficient evidence that disciplinary steps were taken against officials who incurred Irregular and Fruitless and Wasteful expenditure as a result of significant delays in performing investigations relating to these matters.” Contingent liabilities and contingent assets: The Department has incurred Contingent Liabilities of R235 558 000 for the year under review against R236 606 000 in the previous financial year.
The Contingent assets are listed as R1.438 million for the last two financial years and relates to R745 000 from Bakoena Entertainment and Events and R693 000 by Guatayatam: both for breach of contract.

The AGSA has previously expressed its concern regarding the Contingent liabilities and it again expressed this opinion, as no provision has been made in the financial statements for these liabilities.
4.3 Findings of the Auditor General of South Africa The Auditor-General of South Africa (AGSA) audited the financial statements of the Department for the FY2020/21, and the DMV received an unqualified audit outcome for 2020/21.

This is the fourth consecutive unqualified audit outcome.

The following Emphasis of Matters were identified: Material uncertainty relating to the future outcome of exceptional litigation.
As indicated above the AGSA has concerns regarding these lawsuits and the impact thereof, should the litigants be successful, and this is a repeat finding for the last three years.

Report on the audit of the annual performance report.
The AGSA evaluated the usefulness and reliability of the reported performance information in accordance with the criteria developed from the performance management and reporting framework, for the following selected programmes presented in the annual performance report for the year ended 31 March 2021: • Programme 2: Socio-Economic Support.

Number of military veterans approved and provided with compensation benefit.
The achievement was listed as 25 out of a target of 100, but some supporting evidence materially differed from the reported achievement.

The AGSA was unable to confirm the achievement by alternative means due to a lack of relevant and sufficient evidence to confirm the eligibility of the reported number of military veterans.

9 245 Number of bursaries provided to military veterans and their dependants per year.
The reported achievement was 2 779 out of a target of 3 500, but some supporting evidence materially differed from the reported achievement evidence.

This was due to insufficient evidence and applicants who were reported in the incorrect financial year.

The AGSA was unable to confirm the achievement by alternative means.
Other matters: Adjustment of material misstatements The AGSA identified material misstatements in the annual performance report submitted for auditing, and that these were in Programme 2: SES.

As management subsequently corrected only some of the misstatements, the AGSA raised material findings on the reliability of the reported performance information.
Compliance with legislation: Expenditure management Effective steps were not taken to prevent fruitless and wasteful expenditure amounting to R1.332 million.

The majority of the fruitless and wasteful expenditure was caused by payments for interest for delayed settlements.

Some payments were not made within 30 days or an agreed period after receipt of an invoice, as required by Treasury regulations.
Consequence management As in the previous financial year, the AGSA was unable to obtain sufficient appropriate audit evidence that disciplinary steps were taken against officials who had incurred irregular as well as fruitless and wasteful expenditure, as required by the PFMA.

This was as a result of significant delays in performing investigations relating to these matters.
Leadership: Leadership did not exercise adequate oversight over performance reporting, compliance with applicable legislation and related internal controls.

Action plans to address prior year findings were effective, resulting in repeat findings, as similar finding to the previous financial year.

The AGSA further found that management did not implement effective controls to ensure that information contained in the performance reports was supported by relevant evidence before submission for auditing.
This was mainly due to a lack of proper performance and record management systems.

Furthermore, management did not review and monitor compliance with legislation.

5.

OVERVIEW AND ASSESSMENT OF PROGRAMME PERFORMANCE 5.1 Annual Performance The Department initially planned 18 performance areas during the 2020/21 financial year, but this was revised downwards to 15 targets.
Of the 15 targeted performance areas, only 6 targets were achieved which constitutes a 40% overall achievement for the year under review (compared to a 50% performance rate in 2019/20).
FY 2019/20 FY 2020/21 Total targets set Targets achieved Targets not achieved Success rate 16 8/16 8/16 50% 15 6 9 40% Total Budget Spent (%) 73% R477 205/R652 553) 89% (R429 324/480 342) 10 246 The spending of 89% of the budget versus an achievement of 40% of the set targets for the year was noted as it means that 89% of the budget has been spent to achieve less than half of the set targets.
While this can be measured against a spending of 73% and a success rate of 50% in the previous financial year, the low success rate of 40% was noticeable.

This is indicative of how poor the Department is actually performing, notwithstanding the reasons they provide, such as the impact of Covid, the senior management vacancies, and the decrease in the budgetary allocation from National Treasury.
5.2 Programme 1: Administration Total targets set: 4 Targets achieved: 3/4 Targets not achieved: 1/4 Success rate: 75% Total Budget Spent (%): 95% As shown above, Administration had a total of 4 targets of which 3 have been achieved leading to a success rate of 75% and a spending of 95% of the allocated budget.

The Table below shows the target that has not been met namely the 30-day payment for invoices.
Selected Performance Indicators for Programme 1: Administration Performance Indicator Planned Target Actual Achievement Deviation Comment Percentage of legitimate invoices 90% 83 % -7% The backlog on clearing the travel paid within 30 days of receipt account contributes negatively towards compliance with National Treasury Regulations As mitigation, the DMV has efforts in place to manually track all outstanding invoices, most of which are travel related, and pay them on time.
Secondly, its plans to have stricter control and monitoring of items above 30 days and timely clearance of such.

The Department was encouraged to improve on this performance given its impact on SMME’s.

5.3 Programme 2: Socio-Economic Support Total targets set: 6 Targets achieved: 2/6 Targets not achieved: 4/6 Success rate: 33.33% Total Budget Spent (%): 95% The Socio-Economic Support Programme had a total of 6 targets of which only 2 has been achieved leading to a success rate of 33.33%.
Given the poor performance of 33.33%, against a spending of 95%, attention should be paid to improve on reaching the set targets.
11 247 Selected Performance Indicators for Programme 2: Socio-Economic Support Performance Indicator Planned Actual Deviation Comment Target Achievement Number of military veterans who 5 325 1 058 - 4 267 This could be attributed to the Covid-19 are verified and captured on the National Military Veterans’ Database Number of deserving military 710 veterans provided with newly built houses per year Number of military veterans 200 approved and provided with compensation benefit pandemic restrictions on movement of military veterans visiting the DMV and the relaxation came in very late towards the 4th quarter.
-163 Covid 19 pandemic had a negative impact on the construction industry in the country as a whole -75 Covid-19 pandemic related restrictions and availability of SAMHS medical panel, made it difficult for compensation assessments to be done as the programme is contact centered.
Target was reduced to 355 Achieved 192 Target was reduced to 100 Achieved 25 Number of bursaries provided for 7 400 Target - 721 Poor submission of required documents by military veterans and their dependants per year reduced to 3 500 Achieved 2 779 applicants to finalise applications for the period under review Drop outs probably due to impact of Covid- 19 pandemic This is the core programme regarding benefits, and 95% of the budget has been spent, with only two of the six targets having been achieved.
Housing and the Database are two of the biggest challenges for the Department.

The ‘Number of military veterans provided with newly built houses per year’ is an annual target that was also underachieved in the previous financial years.

The DMV has always performed badly on this target since its inception, and it needs to come up with viable solutions to address this serious recurring under-performance.
Only 1 058 out of 5 325 of military veterans have been captured and verified on the Database by end March 2021.

5.4 Programme 3: Empowerment and Stakeholder Management Programme Total targets set: 5 Targets achieved: 1/5 Targets not achieved: 4/5 Success rate: 20% Total Budget Spent (%): 68% 12 248 The Empowerment and Stakeholder Management Programme had a total of 5 targets of which only 1 was achieved leading to a below average success rate of 20%.
If this is compared with the spending of 68% of the programme’s budget, it raised serious questions as to whether value for money was received.
Selected Performance Indicators for Programme 3: Empowerment and Stakeholder Management Performance Indicator Planned Actual Deviation Comment Target Achievement Number of memorial lectures coordinated for 9 2 -7 Covid-19 pandemic lockdown as the military veterans nature of the roll-out of the benefits involves contact with clients in both walk-ins and outreach programmes in the provinces Percentage of approved burial claims paid 100% 99% -1 Covid-19 pandemic restrictions within 30 days of receipt disrupted operations including invoice processing Number of deserving Military Veterans and 1 000 607 -393 Covid-19 pandemic resulted in poor their dependants approved for skills development programmes year delivery of the skills development programme due to country lockdown, thus inability to conduct provincial outreach Number of military veterans’ businesses 110 45 -65 Covid-19 travel restrictions resulted provided with access to business facilitation programmes in the programme not being able t operate at full capacity This is the worst performing Programme given that its success rate is 20%, but it still expended 68% of its budget.
As it is one of the two service delivery programmes, which is inter alia responsible for Skills Development and memorial lectures to honour military veterans, this was noted as a concern.

This programme also mange provincial offices, an issue that has been a problematic area for the Department for years.

6.

GOVERNANCE 6.1 Effectiveness of Internal Control The Audit Committee reports that their review of the internal audit work revealed certain weaknesses which were then raised with the Department.
They state that a lot more needs to be done to stabilise the control environment at DMV.
There were instances of non-compliance and internal control deficiencies, such as the following: • Underperformance on the delivery of benefits to military veterans as well as a lack of automated systems to improve the accuracy and completeness of the reported performance information; Inadequately designed asset management policy framework, incomplete asset register and other discrepancies identified in the management of assets.
• • Continued use of expired contracts resulting in perpetual irregular expenditure.

• Demand and/or procurement plans not reviewed to cater for Covid-19 emergency procurement.

They further state that the Department needs to build a strong control environment by addressing all the control deficiencies.

Although an improvement was noticed in the quarterly reporting to National Treasury, greater 13 249 improvement of performance reports is still required especially in the service delivery branches.
Given that the above is the precise wording in the Annual Report of FY2020/21, it raised questions on what the DMV has done to address all these instances of non-compliance and internal control deficiencies.

It is especially the “Continued use of expired contracts resulting in perpetual irregular expenditure” and the “incomplete asset register” that were noted.

7.
7.

HUMAN RESOURCES 7.1 Overview and vacancies The Department has filled a total of 124 (73%) of total funded posts as at 31 March 2021 against a staff establishment of 169 approved posts.

It has 45 funded vacant posts which translates to 27% of the total funded posts.

Vacancies included the Director-General, Deputy Director-General SES; Deputy Director-General Corporate Services; Director Legal Services and Director Human Resources.
It further states that it has continuously heeded the National Government’s call for the development of young people to address the country’s skills shortages, youth unemployment.

It is also providing bursaries to staff members who are interested in pursuing their studies, in order to equip them with skills and knowledge to perform better in their present and further duties.
Programme No of posts No of posts Vacancy No of additional approved filled rate employees to Administration Socio-economic Support Empowerment and Stakeholder management Total 103 20 46 169 77 31 16 124 25% -55% 65% 27% establishment 44 7 19 70 The vacancy rate in the Department is concerning, especially since it has been consistently above 20% since the FY2015/16.

The Department needs to indicate the progress with filling vacancies, especially the two deputy directors-general for the Department.
With an additional 70 posts being filled on contract basis versus the establishment of 169 posts, it gives the Department a total workforce of 239 people.

It should however be indicated how these employees are spread between provinces and the head office, given the emphasis the Committee has been placing on provincial offices.
The Department is reviewing its Organisational structure to align it with the current realities it is facing and it is hoped that this will streamline the benefit delivery mechanisms.

7.2 Skills Audit The Department previously reported that due to the challenges it is experiencing in attracting and retaining critical and scarce skills, a programme for the implementation for Skills Audit is in place and will be conducted during the 2018/19 financial year.
It has also appointed consultants to conduct the Skills Audit to the amount of R478 800.

The Skills Audit is an issue that the Committee has continuously raised with the Department, given the challenges with capacity and the effectiveness with which benefits and services are being delivered.

Progress with the implementation of the Skills Audit recommendations are thus important and the Committee requested a fully briefing in this regard.
14 250 7.3 Misconduct; disciplinary hearings; performance agreements and rewards and suspensions The Annual Report shows that there were no disciplinary actions taken against employees for the FY2020//21.

It is questioned whether this is correct given that two people (2) exited the Department for misconduct.

It should also be compared with the reported outcomes of disciplinary cases, where four cases are listed: assault (1), gross dishonesty (2) and sexual harassment (1).
It also reported that there were 46 grievances of which 29 have been resolved with 17 unresolved.

Nine senior managers did not conclude their performance agreements and reasons offered include that four have resigned, others were due to ill-health and some opted for severance packages.

It is reported that 42 employees received performance rewards to the amount of R752 350 at an average cost of R17 913.

Three people were suspended at an average number of days of 394, at a cost of R2.48 million to the DMV.
It should be clearly stated which SMS members did not sign their performance agreements as it is too vague to refer to “some” and “others.” 8.

COMMITTEE OBSERVATIONS: DEPARTMENT OF MILITARY VETERANS During deliberations on the 2020/21 DMV Annual Report, the Committee makes the following observations: a.
The Committee raised its concerns regarding the findings of the AGSA against the DMV, especially as it relates to Expenditure Management, Consequence Management and the responsibilities of the leadership at the institution.

b.

Members of the Committee stressed that, in terms of the Military Veterans Act (No.

18 of 2011), the Department has an obligation to all military veterans and their dependents, irrespective of who they and where they reside.
c. Concern was expressed by the Committee over the Department’s lacklustre implementation and monitoring Audit Action Plan.

d. Members raised their serious concern on non-responsiveness to queries of military veterans regarding, inter alia, applications for the provision of services and benefits.

It lamented the fact that even as Members of Parliament they find it hard to receive feedback to queries that they refer to the Department.
Examples of poor responses and inhumane treatment were mentioned by Members.

The DMV committed to follow up these cases and report back to the Committee.

e. Concern was also expressed regarding the continued poor performance of the Department, despite targets being reduced and a permanent Director-General having been appointed.
f. The Committee noted the reduction of annual performance targets as a result of the failure by the Department to achieve targets, and stated that this is not to the advantage of military veterans and their dependents.

g. The Committee noticed the reduction in the annual target on housing from 710 to 355, and that only 192 were provided.
It further stated that the Department has continuously underperform on this annual target and found it incredible that such a target can be decreased while the demand for houses is still very high.

h. A concern was raised that military veterans are being sent to places far from their homes for dental and other medical services.

Given that many of them are poor and may be in ill health, this put an extra financial and physical burden on them.

i.
i.

The Committee is aware of military veterans staying in houses with asbestos roofs which put their health at risk and that the Department just turn such military veterans away.

15 251 9.

COMMITTEE RECOMMENDATIONS Based on its analysis and overview of the 2020/21 DMV Annual Report, the Committee makes the following recommendations: a.
The Committee resolved to monitor and regularly follow up with the DMV on the implementation of its Audit Action Plans; the preventative controls and the implementation of consequence management in relation to irregular, fruitless and wasteful expenditure.
With regards to the leadership issue raised by the AGSA, the Accounting Officer and senior leadership at the DMV, should ensure that they exercise adequate oversight over performance reporting, compliance with applicable legislation and related internal controls.

b.

The Department is required to review its Audit Action Plan and to present this to the Committee to allow it to be monitored on a quarterly basis.
c. The Committee emphasised that the Department should serve all qualifying military veterans and their dependents with the necessary vigour and compassion, irrespective of who and where they are.

The Committee will take exception if veterans are not treated in this manner, and in terms of the Military Veterans Act (No.

18 of 2011).

d. The Committee stressed that it is unacceptable that officials in the Department do not treat and/or respond to queries by military veterans timeously and with compassion.
The Department should give feedback on these cases, and should put measures in place to ensure that such conduct is being rooted out.

The DMV should report to the Committee on these measures on a quarterly basis.

e. The Committee stated that the Covid-19 pandemic, the reduced budget and the vacancies in senior positions might have contributed to the poor performance of the Department.
The Department should however still endeavour to improve on its delivery of services and benefits to military veterans and their dependents as many of their clients are in dire need of these services and benefits.

f. The reduction of annual performance targets as a result of the failure by the Department to achieve targets should be addressed as a matter of urgency, along with the above mentioned recommendations.
Such reductions are detrimental to military veterans and their dependents and create the impression that the Department is content with such under-performance.

g. The Committee recommended that the Department should prioritised the delivery of housing and clear obstacles in this regard at especially provincial and local government level, as the demand for this benefit is still high.
h. The Department was encouraged to ensure that military veterans are routed to medical facilities near their homes to prevent them spending extra money on traveling.

The Committee also stressed that this challenge is exacerbated by the fact that the subsidised public transport benefit has not materialised and lamented that it is still in the policy phase.

i.
i.

The Committee recommends that the Department should explore avenues to assist military veterans staying in asbestos roof houses and give the Committee feedback at its quarterly meetings on this issue.

Report to be considered.

16 252 10.

BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON THE 2020/21 ANNUAL REPORT OF THE DEPARTMENT OF DEFENCE (DOD), DATED 24 NOVEMBER 2021.
The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered the financial and service delivery performance of the Department of Defence (DOD) for the 2020/21 financial year, on 17 November 2021, reports as follows: 1.

INTRODUCTION 1.1.

Description of core functions of the Department The Constitution of 1996 in Section 200 sets out the mandate of the South African National Defence Force (SANDF), while Section 204 establishes a civilian secretariat for the Department.
The mandate is to “defend and protect the Republic, its territorial integrity and its people in accordance with the Constitution and the principles of international law regulating the use of force”.

In pursuance of this mandate, the Department of Defence (DOD) provides, manages, prepares and employs defence capabilities commensurate with the needs of South Africa, guided by the Constitution, relevant legislation and Executive direction.
1.2 Mandate of the Committee The Portfolio Committee on Defence and Military Veterans (PCODMV) is mandated to oversee the Department of Defence and Military Veterans (DODMV) to ensure that the Department fulfils its mandate through the monitoring of the implementation of legislation and adherence to policies, such as the Defence Act (No.

42 of 2002), the White Paper on Defence (1996) and the 1998 Defence Review.
Recently, the 2015 Defence Review was introduced as a policy directive to guide defence activities for the next 20 to 30 years.

These policy guidelines assist the Committee in its oversight activities.

The Committee scrutinises legislation that supports the mission statement of Government, the budget and functioning of DODMV, and the employment of the SANDF.
1.3 Purpose of the preliminary BRR Report Section 5 (2) of the Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) allows for each Committee to compile a Budgetary Review and Recommendation Report (BRRR) which must be tabled in the National Assembly.
Section 5(3) provides for a BRRR to contain the following: a) an assessment of the department’s service delivery performance given available resources; b) an assessment on the effectiveness and efficiency of departments use and forward allocation of available resource; and c) recommendations on the forward use of resources.
In October of each year, parliamentary portfolio committees compile a BRRR that assess performance given available resources; evaluates the effective and efficient use and forward allocation of resources; and makes recommendations on the forward use of resources.

The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.
The BRRRs are also source documents for the Standing/Select Committees on Appropriations/Finance when they make 1 253 recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS).

The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.
The Financial year 002/21 saw the beginning of the Coronavirus (COVID-19) pandemic, with a hard lockdown declared on 26 March 2020 to contain the spread of the disease.

The impact of the pandemic and the necessitated government response, were significant on the DOD, as evidenced by especially the reasons for it not achieving some of its annual performance goals.

1.4 Methodology in compiling the report The Report is compiled from the various activities of the Committee throughout the financial year.
It is inclusive of the Committee’s meetings, oversight visits, reports on budget votes, strategic plans, annual performance plans (APP) and quarterly reports and the relevant annual reports, as well as previously published Committee reports.

1.5 Dates of oversight visits and study tours The PCODMV conducted the following oversight visits related to the DOD during the FY2020/21: • 27 November 2020: Visit to 1 Military Hospital and SA Army Main Ordnance Sub-depot.
• 28 November 2020: Air Force Base Waterkloof • 28 – 29 November 2020: Oversight visit to land borders in Limpopo, Mpumalanga and KwaZulu- Natal.

.
1.6 Information used to compile the Report Besides the information emanating from the oversight visit, other information used in the assessment of the service delivery and financial performance include: • Committee reports on the 2020/21 budget hearings, strategic plans and annual performance plans; • The National Development Plan 2030 (NDP); • The 2020 Estimates of National Expenditure (ENE); • The 2020 State of the Nation Address (SONA); and • The Auditor-General of South Africa (AGSA) Report on the DOD.
1.7 Structure of the Report This report comprises seven sections: • Section 1: An Introduction which sets out the mandate of the Committee, the purpose of this preliminary report (BRRR) and the process to develop this report.

• Section 2: Provides an overview of the key relevant policy focus areas.

• Section 3: Provides an overview performance recommendations of Committee (2019/20).

• Section 4: Provides a broad overview and assessment of financial performance of Department for 2020/21.
summary of previous key financial and the and 2 254 • Section 5: Overview of service delivery and performance of the DOD for 2020/21.

• Section 6: Key Committee Observations.

• Section 7: Key Committee Recommendations.

2.

OVERVIEW OF THE KEY RELEVANT POLICY FOCUS AREAS 2.1 State of the Nation Address The 2020 State of the Nation Address (SONA) was delivered by the President on 13 February 2020.

The 2020 SONA made no direct reference to the defence sector.
However, several aspects were noted that may relate to the defence sector, including the need to promote peace and security on the continent, the need for economic growth that relates to the defence industry, the need to address youth unemployment of which the DOD can contribute to and concerns around the public wage bill that affects the DOD.

Two indirect implications that may affect the SANDF should be considered.
Firstly, President Ramaphosa identified the need to accelerate economic growth in South Africa.

The current slow rate of economic growth will continue to impact on military capacity in South Africa.

Spending on personnel in the SANDF is significantly higher than the desired norm.

While the 2015 Defence Review noted that personnel spending should be brought to 40%, the DOD is spending more than 60% of its budget on personnel.
This significantly impacts on the ability of the military to procure new equipment and to appropriately fund operations.

It also impacts on the ability of the Force to rejuvenate and adding to youth development and employment.

Secondly, President Ramaphosa’ s commitment to continental peace and security will continue to place operational requirements on the SANDF.

Similarly, the strive to achieve sustained internal peace and stability may also bring about an increased internal role for the SANDF.
Both these aspects will require careful consideration given the financial constraints under which the Force operates.

In order to deploy effectively, be it in terms of international peace missions, border safeguarding or internal deployments with the police, the SANDF needs to be well equipped and trained.

This requires sufficient funding levels.

2.2 The National Development Plan 2030 The National Development Plan (NDP) presents a number of Recommendations, Actions and Indicators that relate to the DOD.
The following represent some of the key aspects with relevance to the DOD: • Chapter 7: Positioning South Africa in the World.

The NDP proposes the convening of a high-level, high-impact task team to investigate South Africa's foreign relations.

The study should outline an implementation programme to reach these objectives, focusing on, inter alia, national defence.

The DOD contributes to this focus point of the NDP through peacekeeping operations and the presence of defence attaches around the world.
Chapter 7 of the NDP also recommends that South Africa should extend the current agreement that allows the South African Navy to undertake anti-piracy operations in Mozambican and Tanzanian waters, to include Kenya.

South Africa’s anti-piracy operation, which involves the South African Air Force, Special Forces and South African Military Health Services as well as the South African Navy, must be strengthened in order for operations to be sustained.
• Chapter 7 of the NDP also recommends the strengthening of border-enforcement to curb cross-border smuggling of counterfeit goods.

3 255 • Chapter 9: Promoting health.

The NDP notes the aim of Universal Health Care coverage and that everyone must have access to an equal standard of care, regardless of their income.

The DOD provides health services to all members of the SANDF through the SA Military Health Services (SAMHS), as well as assisting mil veterans with medical care.
• Chapter 14: Fighting corruption.

The NDP aims for corruption-free society, a high adherence to ethics throughout society and a government that is accountable to its people.

The DOD furthers this goal through a number of initiatives, including the national anti-corruption hotline, Corruption and Fraud awareness campaigns as well as implementing and monitoring the DOD Procurement Policy.

The envisaged contributions are further concretised in the Medium-Term Strategic Framework (MTSF).
2.3 The Medium Term Strategic Framework (2019 - 2024) The 2019-2024 Medium Term Strategic Framework (MTSF) of Government identifies a number of priorities that are based on the electoral mandate.

The 2020/21 Annual Reporting period falls under the mentioned MTSF.

The MTSF identifies 7 priorities of Government and the DOD plays an important role in Priority 6 (Social cohesion and safer communities) and Priority 7 (A better Africa and world).
Contributions to these outcomes are summarised in the table below.
DOD contributions to strategic outputs MTSF Priority Performance indicator Target 2020/21 Achievement 2020/21 Priority 7 Total number of Defence 44 Offices 44 Offices Attaché Offices Priority 6 Total number of military skills 3 604 development (MSDS) members in the system 1 956 MSDS training cancelled due to state of disaster Priority 6 Number of Reserve Force man days 2 695 963 3 355 353 Priority 7 Percentage compliance with the Southern African Development Community Standby Force Pledge 100% 87.5% Maritime component not available due to maintenance Priority 7 Percentage compliance with number of ordered commitments (external operations) Priority 6 Percentage compliance with number of ordered commitments (internal operations) Priority 6 Number of Joint, Interdepartmental, Interagency and Multinational military exercises conducted 4 100% 100% 100% 100% 0 0 Covid-related cancellations as per the Adjusted ENE.
256 Priority 6 Number of landward subunits 15 15 Priority 6 deployed on border safeguarding Number of hours flown per year (includes an estimated 4 000 hours for Force Employment, approximately 12 100 hours for Force Preparation and 1 000 VVIP hours.)

17 100 13 726.4 Flying dependent on serviceable aircraft; spares delivery delayed due to Covid Priority 6 Number of hours at sea per 10 000 Year 6 818.4 Most vessels in maintenance.
No Ops Copper deployment in 2020/21 2.4 Strategic priorities of the Minister of Defence The 2020 Annual Performance Plan of the DOD highlighted the Minister of Defence’s six strategic priorities.
These priorities relate directly to the 2015 Defence Review, notably Milestone 1 of the Defence Review, and include: • Defence Strategic Direction • Strategic Resourcing Direction • Organisational Renewal • Human Resources Renewal • Capability Sustainment Direction • Ordered Defence Commitments Direction The outflow of the stagnating defence budget, the compensation of employees ceiling and a lack of organisational renewal impact significantly on the Ministerial priorities.
In her letter in the DOD 2019/20 Annual Report, the Minister further noted that “the Defence budget has been cut beyond the bone – the Special Defence Account (SDA), a key instrument to enable Defence to execute its approved defence acquisition projects, is nearing its demise.

This means that major acquisition projects for the landward forces and maritime forces are under serious threat from non-completion.” This highlights the difficulty in capability sustainment in the SANDF.

3.
3.

SUMMARY OF PREVIOUS RECOMMENDATIONS OF THE COMMITTEE (2019/20) KEY FINANCIAL AND PERFORMANCE 3.1 Budgetary Review and Recommendations Report (BRRR) 2019 recommendations Based on its analysis and overview of the 2019/20 Annual Report of the Department of Defence, the Committee made the following recommendations: Recommendations to the Minister of Finance: • The Committee welcomes the provision of additional funds for the use of technology to augment border safeguarding.
However, the Minister of Finance should consider an additional ring-fenced allocation to 5 257 gradually increase the number of sub-units from the current 15 to at least 22 sub-units for border safeguarding by the SANDF.

This increase will assist the SANDF in countering cross-border crime and adhering to its legislated function to effect national border control.
• The Ministers of Finance should consider an additional ring-fenced allocation to fund the midlife upgrades of the SA Navy vessels in need of such upgrades.

The upgrade of the SA Navy’s Frigate and Submarine fleet is essential to ensure that the Navy maintains its patrol capabilities and thereby fulfil its Constitutional requirement to ensure the territorial integrity of South Africa.
• The Minister of Finance and Minister of Defence are encouraged to find means to salvage the Special Defence Account (SDA).

This will be essential to ensure that the DOD can continue to maintain critical capabilities and provide continued indirect support to the Defence Industry.

• The Minister of Finance should indicate to the Committee its willingness to fund, in addition to the DOD’s main allocation, a workable and humane exit mechanism for personnel over the medium-term.
This will assist the Committee in its planned engagement with the DOD going forward.

Recommendations to the Minister of Finance and Minister of Defence: • The Committee urges the immediate engagement between the Minister of Defence, the Minister of Finance and the Commander-in-Chief of the SANDF, to finalise a funding plan that will arrest the current decline of the military.
This recommendation is derived from the dire financial and resource situation shared with the Committee by especially the SA Army, SA Air Force and SA Navy during its recent oversight engagements.

The finalised plan should be presented to the Committee no later than the end of the First Quarter of 2020/21.

• The Committee noted comments by the DOD that savings to Compensation of Employees can be made through a process of force rejuvenation.
The Committee therefore recommends a joint approach to force rejuvenation that would see the DOD develop and roll out a rejuvenation plan and National Treasury providing funding for an exit mechanism to speed up rejuvenation.

National Treasury should, as soon as possible, release funds to facilitate an interim exit mechanism for the remainder of 2019/20.

The DOD should finalise rejuvenation plans for full implementation from 2020/21.
• The Minister of Defence and Minister of Finance should jointly investigate means to ensure the midlife upgrades for SA Navy frigates and submarines are carried out according to schedule.

Joint feedback should be provided to the Committee before the end of the 2019/20 financial year.

Recommendations to the Minister of Defence: • The DOD should report on the spending progress of the R225 million for borderline technology.
• Given that Project Hoefyster is significantly behind schedule, the DOD, Armscor and Denel should jointly re-evaluate the feasibility of Project Hoefyster and present the Committee with a way forward.

Key to this outcome should be a focus on SANDF capability as well as fiscal stability.

The Minister, through the Armaments Acquisition Council, should provide feedback to the committee on the outcome of engagements between the DOD, Armscor and Denel on the future of Project Hoefyster.
• DOD should ensure that it invoices government departments for services rendered by the DOD and the Department should indicate to the PCODMV if there are cases where such invoices were not paid.

• The DOD should brief the Committee on a quarterly basis on the status of funding for Projects Biro and Hotel, including from which other capital acquisition projects funds are moved from to pay for these projects.
• The DOD is encouraged to ensure that funds earmarked for Research and Development purposes are released.

• The DOD should realign its 2020/21 Annual Report to report on the following two targets that have been classified: o Percentage medical stock availability.

o Reimbursements received from the United Nations for deployments.
6 258 • The Committee recommends urgent interventions to ensure improved case finalisation in the Legal Services Division, specifically the finalisation of disciplinary cases in the Department, as it relates directly to Consequence Management.

• The DOD should report to the Committee in writing the status of all outstanding DOD strategies as well as future developmental and implementation dates.
• Measures to return the DOD to a Level 5 Enterprise Risk Management maturity level rating in 2020/21 should be implemented.

Progress in this regard should be presented to the Committee on a quarterly basis.

• The Committee remains concerned about the fact that the SA Air Force is not able to meet its flying hour targets.

The Committee will continue to monitor this on a quarterly basis and requests the DOD to provide it with these figures quarterly as well as reasons for non- achievement of the target.
• The Committee requests a broad outline from the DOD on its envisaged utilisation and maintenance of the vessels to be delivered to the SA Navy over the MTEF.

Clarity should be provided on how this will be funded and the impact that it will have on the Navy’s ability to achieve its target on sea hours.

• The DOD should effectively capacitate Defence Intelligence to increase its capacity for vetting decisions.
• Given that the Military Police managed to exceed its targets in 2019/20, the DOD should consider adjusting these targets upwards for the outlying years of the MTEF to ensure enhanced performance.

• The DOD should indicate to the Committee in writing the measures it will take to reduce the lengthy periods that SANDF members are suspended with pay and the subsequent cost to the DOD.
• The DOD should furnish the Committee with a report on the reasons for under-collection of transfers from the UN due to the Memorandum of Understanding not being finalised.

• The DOD should urgently appoint new auctioneers to ensure that revenue can be generated from the sale of approved obsolete assets.
While the Committee understands that Project Thusano is ongoing to realise the utilisation of old vehicles, the auctioning of equipment that were already found to be unserviceable should proceed without delay as the Committee was informed that some of these vehicles dated from the 1980’s.

• The Committee encourages the Minister of Defence to relay to Cabinet the dire consequences of any potential collapse of Denel to Armscor, the broader defence industry and the SANDF’s operational capability.
• The Committee encourages the Minister of Defence to speed up plans to generate revenue for the DOD and quarterly updates on progress in this regard should be provided to the Committee.

• The Committee urges the DOD to ensure that Supply-Chain Management functions are realigned to resort under the control of the CFO and the Risk Management under the accounting officer.
3.2 Response by the Minister of Finance The following responses to the above recommendations were received from the Minister of Finance: The committee welcomes the provision of additional funds for the use of technology to augment border safeguarding.

However, the Minister of Finance should consider an additional ring-fenced allocation to gradually increase the number of sub-units from 15 to at least 22 sub-units for border safeguarding by the South African National Defence Force (SANDF).
This increase will assist the SANDF in countering cross-border crime and adhering to its legislated function to effect national border control.

• Border security remains a government priority.

Over the 2021 MTEF period, R3.2 billion is earmarked to safeguard borders.

As noted earlier, there is little scope to provide additional funding at this time and fiscal constraints require departments to identify opportunities for reprioritisation.
The Minister of Finance should consider an additional ring-fenced allocation to fund the midlife upgrades of the South African Navy vessels in need of such upgrades.

The upgrade of the South African Navy’s frigate and 7 259 submarine fleet is essential to ensure that the Navy maintains its patrol capabilities and thereby fulfil its constitutional requirement to ensure the territorial integrity of South Africa.
• As noted at the beginning of this section, there is little scope for additional funding and departments are advised to identify areas of reprioritisation, including by improving their internal efficiency.

The Minister of Finance and the Minister of Defence and Military Veterans are encouraged to find means to salvage the Special Defence Account.
This will be essential to ensure that the Department of Defence can continue to maintain critical capabilities and provide continued indirect support to the defence industry.

• As noted at the beginning of this section, there is little scope to provide additional funding at this time.

The Minister of Finance should indicate to the committee his willingness to fund, in addition to the Department of Defence’s main allocation, a workable and humane exit mechanism for personnel over the medium term.
This will assist the committee in its planned engagement with the department going forward.

• The National Treasury agrees that the department requires a long-term plan to manage compensation spending pressures.

In the 2019 Budget, the National Treasury provided funding to implement early retirement without penalties, as part of an effort to reduce the growth of public-service compensation.

Unlike other departments, the Department of Defence chose not to participate in this initiative.
As noted at the beginning of this section, there is little scope to provide additional funding at this time.

4.

OVERVIEW AND ASSESSMENT OF FINANCIAL PERFORMANCE FOR 2020/21 The DOD set itself a total of 53 targets over its eight programmes for 2020/21.

Of the total targets, 15 were deemed to contain classified information and were not made available for public scrutiny.

The DOD reported on 21 targets achieved and 15 under-achieved.
Non-performance was particularly noticeable in Programme 1 (Administration).

The level of performance should be viewed against expenditure of R54.086 billion (98.8%) of a final appropriation of R54.201 billion.
4.1 Programme 1: Defence Administration 4.1.1 Defence Administration financial shifts and expenditure Programme Adjusted Appropriation Virement R’000 Final Appropriation Actual Expenditure Variance R’000 % Administration 5 445 083 (117 730) 5 327 353 5 325 033 2 320 0.1% The Administration programme’s total expenditure for 2020/21 came to R5.325 billion, following virements of R117 million away from the programme.
The virements away from the programme largely impacted on Compensation of employees (R45.693 million) and Goods and Services (R84.762 million).
The subprogrammes most affected by virements include the following: • Financial Services (a reduction of R40.845 million) • Legal Services (a reduction of R32.040 million) • Defence Foreign Relations (a reduction of R49.316 million) • Reserve Force Direction (a reduction of R6.110 million) • Office Accommodation (an increase of R71.961 million) 8 260 In terms of expenditure per economic classifications, the following may also be noted: • Advertising: A virement of R16.735 million was made to advertising, increasing the final appropriation to R55.391 million of which 100% was spent.
This amount seems high for 2020/21 that was characterised by countrywide lockdowns, the cancellation of recruitment initiatives and the lack of an Armed Forces Day (In 2019/20, R70.704 million was spent on advertising).

• External audit: The DOD spent R1.960 million on external audit, compared to R2.634 million in 2019/20.

4.1.2 Defence Administration performance The Administration programme set nine (9) targets for 2020/21 of which one is considered classified information.
Of the remaining eight (8) targets, three were achieved, reflecting a 37.5% success rate against set targets for Programme 1.

Administration programme: Selected non-performance on set targets Subprogramme Target description Defence strategic direction % adherence to DOD index for policies 2020/21 Target >80% 2020/21 Achievement 66.2% % adherence to DOD index for strategies 50% 0% % adherence to DOD index for plans 90% 84.2% Comments No Policy Board meetings took place during lockdown.
Six policies are in the departmental approval phase.

Not achieved The absence of higher order corporate strategies, hampered the development of subordinate functional strategies.

Not achieved Department complied with the Parliamentary requirement to re- table five 2020 Planning Instruments.

Not achieved Number of Reserve Force man days 2 695 963 3 355 353 Additional deployments as part of Op Nothlela.
Reduction in number of audit qualifications 5 2 Achieved Audit qualifications in terms of ‘Goods and Services and Investments’ as well as ‘Irregular Expenditure’ Not achieved 9 261 2020/21 Target 100% 2020/21 Achievement 83.3% Comments Some audit projects were impacted by COVID-19 regulations.
Not achieved 44 44 Achieved 100% 100% Achieved Subprogramme Target description Defence Capabilities provided Audits completed in terms of the approved Internal Audit Plan Number of Defence Attaché Offices Capabilities required to support national efforts in mitigating and combating the spread of COVID-19 4.2 Programme 2: Force Employment Programme Adjusted Appropriation Virement Final Appropriation Actual Expenditure Variance R’000 Force Employment 4 620 476 40 263 4 660 937 4 660 937 0 % 0% The purpose of this programme is to provide and employ defence capabilities.
In 2020/21, following the adjusted appropriation, a further virement of R40.263 was made to the programme.

While all subprogrammes had its allocation reduced through virements, the Special Operations subprogramme had its allocation increased through a virement of R475.009 million.

The largest virements away from subprogrammes were for Regional security (allocation reduced by R203.572 million) and Support to the People (allocation reduced by R195.180 million).
In terms of economic classifications, the virements away from the Force Employment programme was largely in terms of Compensation of Employees (R87.296 million) and Goods and services (R301.976 million).

Virements to the programme was largely in terms of Departmental agencies and Accounts (R309.3 million) and Transport Equipment (R110.603 million).
A total of 12 targets were set for the programme of which five were classified and one (interdepartmental exercises) had no target for 2020/21 due to the Covid pandemic.

Of the six (6) remaining targets, four (4) were achieved.

The targets not achieved relates to only 52% of the UN reimbursement for SANDF deployments being realised and 87% compliance with the SADC Standby Force against a target of 100%.
4.3 Programme 3: Landward defence Programme Adjusted Virement Appropriation Final Appropriation Actual Expenditure Variance R’000 % (Per Programme) Landward Defence 16 617 184 569 462 17 186 646 17 186 646 0 0.0% The purpose of this programme is to provide prepared and supported landward defence capabilities for the defence and protection of South Africa.

In terms of spending, all subprogrammes spent 100% of their final 10 262 appropriation.
Following the adjusted appropriation, further virements to the value of R569.462 million was made to the programme.

Only two subprogrammes had their allocation reduced through virements, including the Support Capability (R23.466 million) and the Command and Control Capability (R506 000).
The virements increased the appropriation of several subprogrammes significantly, most notably: • Strategic Direction (allocation increased by R44.934 million) • Armour capability (allocation increased by R84.108 million) • Artillery capability (allocation increased by R56.297 million) • Air Defence capability (allocation increased by R49.901 million) • Engineering capability (allocation increased by R169.3 million) • Signal capability (allocation increased by R107.250 million) In terms of economic classifications, the virements were largely for: • Compensation of employees (an increase of R127.953 million) • Contractors (an increase of R147.676 million) • Computer services (an increase of R52.231 million) • Machinery and equipment (an increase of R61.539 million) • Travel and subsistence (an increase of R37.899 million) Five (5) targets were set for this programme of which two are considered classified and one (number of unique force training exercises) had no targets due to the Covid pandemic.
The programme did not achieve the target on its training targets (69%) against a target of 80%.

4.4 Programme 4: Air defence Programme Adjusted Virement Appropriation Final Appropriation Actual Expenditure Variance R’000 % (Per Programme) Air Defence 7 536 152 148 644 7 684 796 7 684 796 0 0% The purpose of the Air Defence programme is to provide prepared and supported air defence capabilities for the defence and protection of South Africa.
In terms of spending, all subprogrammes spent 100% of their final appropriation by the end of the financial year.

Virement of R148.644 million was made to the programme.

Following the adjusted appropriations, subsequent virements resulted in large increases for the Helicopter Capability (R237.247 million), the Base Support Capability (R121.746 million) and the Technical Support Services (R92.579 million).

The largest virement away from a subprogramme was from the Air Combat Capability (R148.897 million).
In terms of economic classifications, the additional virements largely benefitted Departmental Agencies and Accounts (R257.941 million) and public corporations/private enterprises (R330 million).

Virements reduced the allocation for Contractors from R1.420 billion to R1.142 billion.

Virements also resulted in a reduction of the final allocation for Fuel, Oil and Gas from an adjusted appropriation of R358.159 million to R253.525 million of which only 48.7% was spent.
11 263 Six (6) targets were set of which two are deemed classified (compliance with Joint Force Employment requirements and combat-ready capabilities available).

The programme did not achieve its targets related to training (63% against a target of 80%).

The SA Air Force also did not achieve the number of flying hours with only 13 726 hours flown against a target of 17 000.
Crucially, in terms of flying hours, it should be noted that the target for the Performance Indicator “number of hours flown per year” was reduced from 25 000 to 17 200 hours per year in 2019/20 and further to 17 100 in 2020/21 due to the reduction in the budget allocation to the Air Defence Programme.
4.5 Programme 4: Maritime defence Programme Adjusted Virement Appropriation Final Appropriation Actual Expenditure Variance R’000 % (Per Programme) Maritime Defence 4 958 731 (221 230) 4 737 501 4 737 501 0 0% The purpose of the programme is to provide prepared and supported maritime defence capabilities for the defence and protection of South Africa.

The Maritime Defence programme spent 100% of its final allocation of R4.738 billion by the end of 2020/21.
Following the mid-year adjustments, the allocation for the programme was further reduced through a virement of R221.230 million.

The Maritime Logistics Support Capability was the subprogramme most affected by the virement with its allocation being reduced by R159.028 million.

In terms of economic classifications, the virement reduced the allocation of Goods and Services by R480.505 million, while Departmental Agencies and Account received an additional R229.499 million.
Of further interest to operational capacity of the SA Navy is the reduction in the allocation for Fuel, Oil and Gas from an adjusted appropriation of R107.727 million to a final appropriation of R53.063 million of which only 63.9% was used.

Thus, in 2020/21, only R33.881 million was spent on Fuel, Oil and Gas, compared to R119.516 million in the preceding year.

This may speak to the limited operations of the SA Navy and raises real concerns around its training capacity and operational capacity.
For the period under review, the Maritime Defence Programme had seven (7) targets of which two were deemed classified (compliance with Joint Force Employment requirements and combat-ready capabilities).

The programme did not achieve its targets for the number of coastal patrols per year (conducting three patrols against a target of four).

The SA Navy also failed to achieve its target of 10 000 sea hours for the year and managed to achieve only 6 818.
4.6 Programme 6: Military Health Support Programme Adjusted Virement Appropriation Final Appropriation Actual Expenditure Variance R’000 % 6 077 410 (478 294) 5 599 116 5 487 140 111 967 2% Military Health Support The purpose of the Military Health Support Programme is to provide prepared and supported health capabilities and services for the defence and protection of South Africa.

The programme spent 98% of its final appropriation 12 264 of R5.599 billion by the end of 2020/21.
Underspending of R111.761 million was recorded in the Military Health Product Support Capability subprogramme.

In this subprogramme, over-expenditure of R94.575 million was recorded in terms of Compensation of Employees, but underspending of R105.541 million was recorded in terms of Goods and Services as well as a R100.795 million underspending in terms of machinery and equipment.
Of further interest in terms of the Military Health Support programme’s economic classifications is that the programme only spent 71.5% (R274.649 million) of its adjusted appropriation of R469.923 million on Medicine.

The programme had five targets of which three were deemed classified.

The programme achieved 100% of its target related to support for national efforts in mitigating and combating the spread of Covid-19.
The training target was not reached with 412 less learners than planned successfully completed training programmes.

The non-achievement of learning programmes and learners was exacerbated by Covid-19 restrictions.

Lastly, it should be noted that, in the past, the programme reported on the number of healthcare activities per year.

However, as per the 2020 APP, this was not included in the 2020/21 Annual Report.
This is of concern given that in 2019/20 the programme failed to reach its target in terms of healthcare activities and there is no means of assessing recovery or further regression in the 2020/21 Annual Report.
4.7 Programme 7: Defence Intelligence Programme Adjusted Virement Appropriation Final Appropriation Actual Expenditure Variance R’000 (Per % Programme) Defence Intelligence 1 147 862 (16 931) 1 130 931 1 130 931 0 0% The purpose of Defence Intelligence programme is to provide a defence intelligence and counter-intelligence capability.

For 2020/21, the programme spent 100% of its final allocation, but its allocation was reduced after the mid-year adjustments through a virement of R16.931 million.
This virement largely affected the Defence Intelligence Support Services subprogramme in a reduction to Travel and Subsistence (R10.9 million), Fuel (R3.27 million) and Food supplies (R2.878 million).

The programme had two targets reported on in the Annual Report related to the number of vetting decisions and the number of Defence Intelligence Products.
It over-achieved on both targets with 1 114 Defence Intelligence Products produced (against a target of 448) and 6 520 vetting decisions taken (against a target of 4 500).

4.8 Programme 8: General Support Programme Adjusted Virement Appropriation Final Appropriation Actual Expenditure Variance R’000 (Per % Programme) General Support 7 798 191 75 816 7 874 007 7 873 206 801 0% The purpose of the General Support programme is to provide support capabilities and services to the Department.
The programme spent 99.9% of its final appropriation of R7.874 billion by the end of the financial year.

After the mid-year adjustments, an additional R75.816 million was allocated to the programme through a virement.

13 265 Major shifts in the programme included the reduction of the Command and Management Information Systems subprogramme allocation by R102.424 million and an increase to the Technology Development subprogramme by R214.265 million.
In terms of economic classifications, the General Support programme overspent on compensation of Employees by R266.517 million.

This was recovered from spending on Goods and Services where underspending of R266.517 was recorded.
In terms of performance, a total of seven (7) targets were set for 2020/21 of which six (6) were achieved, as depicted below: Programme 8: General Support achievements against targets for 2020/21 Target description 2020/21 2020/21 Comments Number of landward sub-units deployed on border safeguarding Percentage procurement requests fully completed within 90 days from day of Registration Payment of leases, Accommodation charges and municipal services – Payment according to facilities plan Compliance with ICT Capabilities Plan Number of Crime Prevention operations conducted Target Achievement 15 15 Achieved 95% 99.87% Achieved 100% 101.3% Over expenditure of R35 450 180.00 is due to leases paid and annual escalations.
Achieved 90.4% 91.73% Achieved 124 114 Impact of Ops Notlela Criminal cases investigated (backlog) 40% 56% Not achieved The Department investigated 1 473 criminal cases from the backlog of 2 604 criminal cases.

Achieved Criminal cases investigated (in- year) 25% 44% 1099 new cases were received of which 490 cases were investigated.

Achieved 5.
Achieved 5.

ORGANISATIONAL STRUCTURE AND HUMAN RESOURCE SUPPORT The Human Resources (HR) Management chapter of the 2020/21 Annual Report deals with various issues related to personnel.

The following key aspects should be considered by the PCODMV: • Personnel spending (Compensation of Employees): The DOD received a main appropriation for Compensation of Employees at the start of 2020/21 to the value of R31.178 billion which was adjusted downwards during the mid-year adjustments to R30.985 billion.
At the end of 2020/21, the DOD spent R32.760 billion on Compensation of Employees which is 61% of the Department’s total expenditure.

The DOD overspent on Compensation of Employees by R1.775 billion in 2020/21.

14 266 • Reduction in Navy Personnel: The SA Navy, the smallest component of the SANDF, has seen its personnel figures continue to decrease in recent years.

It decreased from 7 076 members by the end of 2016/17 to 6 992 by the end of 2017/18.
It further reduced to 6 816 in 2018/19, 6 647 in 2019/20 and 6 389 in 2020/21.

• Critical occupation vacancy rates: In terms of critical occupations, several areas with high vacancy rates should be noted.

These vacancy rates are against the approved established structure of the DOD (with a total of 89 000 personnel; compared to the current actual strength of 72 322).
However, the vacancy rate does provide a sense of requirement in the SANDF for specialists: o Airspace Control has a vacancy rate of 13% (15% in 2019/20).

No new appointments in 2020/21.

o Aircrew has a vacancy rate of 22% (18% in 2019/20).

No new appointments in 2020/21.

o Engineers has a vacancy rate of 53% (47% in 2019/20).

No new appointments in 2020/21.

o Nursing has a vacancy rate of 16% (12% in 2019/20).

Only 3 new appointments in 2020/21.


o Technical has a vacancy rate of 23% (22% in 2019/20).

• Non-signing of performance agreements by Senior Management: Of the total of 251 Senior Management Members, only 236 signed their performance agreements in time.

This has been a recurring area of underperformance for the DOD.

The main reasons for the late submission of Performance Agreements were administrative challenges (i.e.
Incomplete Performance Agreements) and Non- Completion due to expiry of term as Defence Attaché.

There were no disciplinary measures taken against the members who did not comply.

• Performance rewards: The total cost of performance rewards paid out increased from R197.045 million in 2018/19 to R219.591 million in 2019/20.

However, in 2020/21, no performance awards were paid by the DOD.

• Sick leave cost: The total cost of sick leave has fluctuated significantly in recent years.
In 2016/17, the estimated cost for sick leave utilisation was R330.731 million.

For 2017/18, this decreased slightly to R320.405 million, with a further reduction to R296.754 million in 2018/19.

However, in 2019/20, the total cost of sick leave increased drastically to R400.189 million and again decreased significantly to R258.955 million in 2020/21.

The average number of days’ sick leave per employee decreased from 8 in 2019/20 to 7 in 2020/21.

• Rejuvenation and exit mechanism.


The 2019/20 Annual Report contained the following statement: “the DOD appreciated the rejuvenation of its regular force HR composition.

In addition, it has also appreciated the realignment of an exit mechanism as directed by the Minister of Defence and Military Veterans.
The remaining HR funding impasse is grounded on the fact that the DOD is required to maintain a HR capacity, not commensurate with the funding allocation.” However, the 2020/21 Annual Report made no follow-up in this regard.

• Cost of suspension with pay: During the JSCD mini-symposium on Force Structure, it was pointed out to the Committee that the cost of SANDF members being suspended on full pay for lengthy periods poses a financial constraint to the Department.
In 2018/19, at least 30 uniformed members were suspended with full pay for an average of 338 days, costing the Department R10.728 million.

In 2019/20, at least 56 uniformed members were suspended for an average of 251 days at a cost of R14.116 million to the Department.

This increased further in 2020/21 to 57 uniformed members suspended for more than 30 days at a cost of R16.978 million to the DOD.
In addition, the DOD has 11 Public Service personnel suspended for more than 30 days at a cost of R2.719 million to the DOD.

6.

BROAD FINANCIAL CONCERNS AND THE AUDITOR-GENERAL’S REPORT 15 267 6.1 Unauthorised, fruitless and wasteful, and irregular expenditure Irregular expenditure, according to the DOD, amounted to R2.182 billion for 2020/21, which is lower than the R2.832 billion irregular expenditure incurred in 2019/20.
According to the DOD, major contributors to irregular expenditure include: • R1.775 billion was for expenditure above the Compensation of Employees allocation; this was due to a reduction imposed by Treasury through budget reduction on actual employees in the services of the DOD.

• R105 million was paid for the asset verification project contract which was awarded through an unfair bidding process.

This contract will be concluded in 2021/22.


• R39 million for an Information Communication Technology contract awarded in the FY2019/20.

This contract will be concluded in 2022/23.

• R37 million was incurred for COVID-19 Personal Protective Equipment procurement, when the Department deviated from National Treasury’s instruction.

• R37 million was incurred when the Department followed an unfair bidding process in awarding the fuel contract for the North-West and Gauteng provinces.
• R33 million was incurred when the Department did not comply with the South African Health Products Regulatory Authority, approval was not obtained prior to the importation of an immune booster medicine.

• R102 million was incurred for 11 different procurement deviations within the Sensitive Projects environment.
Fruitless and wasteful expenditure decreased from R20 million in 2019/20 to R4 million in 2020/21 The main contributor relates to an incident of interest and foreign currency fluctuation for a late payment.

Decisions on the way forward will be determined and appropriate action taken.

6.2 Findings by the Auditor-General of South Africa As in the past two financial years, the DOD received a qualified audit opinion from the Auditor-General for 2020/21.
The basis for the qualified audit opinion rests on the following: • Goods and services and investments.

Similar to previous years, the AG was unable to obtain sufficient appropriate audit evidence for sensitive projects (in relation to the Special Defence Account (SDA)).

• Irregular expenditure.

The department did not fully record irregular expenditure in the notes to the financial statements.

The AG also raised the following emphasis of matters: • Payables not recognised.
payables of R114,42 million exceed the payment term of 30 days as required by treasury regulation 8.2.3.

This amount, in turn, exceeded the R5,88 million of voted funds to be surrendered by R108,55 million as per the statement of financial performance.

The amount of R108,55 million would therefore have constituted unauthorised expenditure had the amounts due been paid on time.

• Uncertainty of future outcomes of litigation.

The Department is the defendant in various lawsuits.
The ultimate outcome of these matters cannot presently be determined and no provision for any liability that may result has been made in the financial statements.
16 268 Additional concerns raised by the AG that Members of the PCODMV may wish to seek clarity on include the following: • Expenditure management o Effective and appropriate steps were not taken to prevent irregular expenditure, as required by section 38(1)(c)(ii) of the PFMA and treasury regulation 9.1.1Some of the quotations were accepted from prospective suppliers who did not submit a declaration on whether they are employed by the state.
The majority of the irregular expenditure disclosed in the financial statements was caused by compensation of employees’ budget being exceeded without National Treasury approval, in contravention of treasury regulation 6.3.1(a).

o Effective steps were not taken to prevent fruitless and wasteful expenditure amounting to R18,87 million as disclosed in note 25 to the annual financial statements, as required by section 38(1)(c)(ii) of the PFMA and treasury regulation 9.1.1.
The majority of the fruitless and wasteful expenditure was caused by payments made in terms of an operating lease for unutilised property.

o The department did not use its resources economically, as required by section 45(b) of the PFMA.

• Some of the goods and services of a transaction value above R500 000 were procured without inviting competitive bids and deviations, as required by treasury regulations 16A6.1.

and 16A6.4.

Similar non- compliance was also reported in the prior year.
• Some of the prices of emergency goods or services procured through quotations in response to the National State of Disaster declared on 15 March 2020 were above prices negotiated by National Treasury in terms of paragraph 3.7.6(ii) of the National Treasury Instruction Note no.

8 of 2019-20.

7.

COMMITTEE OBSERVATIONS: DEPARTMENT OF DEFENCE The Committee made the following general observations on the 2020/21Annual Report: A.
Members expressed concern around the sizeable virements made across programmes following the adjustments period in 2020/21.

While Members agreed that these virements did not require parliamentary approval as it fell under the 7% threshold prescribed by the PFMA, the need for large virements does reflect poorly on the levels of financial planning.

B.

The Committee, as in previous years, expressed significant concern around the matter of over-spending on Compensation of Employees.
This has been a major contributor to irregular expenditure, as highlighted by the AGSA.

C. Members raised the need for the DOD to focus on addressing the matters for qualification as noted by the AGSA.

D. Members highlighted the need for the DOD to focus on consequence management within the Department, specifically due to the need for the SANDF to be managed as a disciplined military force.
E. Members questioned the non-achievement of training targets within several programmes during 2020/21, but expressed understanding that Covid-19 impacted on the achievement of such targets.

F. The low level of reimbursement from the United Nations for SANDF deployments was raised a matter of concern as this impacted on the already constrained finances of the DOD.
It further reflects negatively on the SANDF’s operational readiness in the mission areas, given that the United Nations reimburses South Africa’s contribution based on the levels of force and equipment readiness.

G. Members expressed disappointment that, as in previous years, the targets for flying- and sea-hours were not achieved by the SA Air Force and SA Navy, and questioned the impact that this has on operational capacity and force preparation.
17 269 H. The Committee again noted the need for the urgent midlife upgrades to the SA Navy platforms to avoid operational capacity loss over time.

I.

Members questioned the continued need for 44 Defence Attaché Offices given the financial constraints under which the Department currently functions.

J.

The Committee raised questions around the need for additional funds through a virement for advertising in Programme 1, especially given the protracted lockdowns in 2020.
K. Members noted that the reasons provided for the DOD’s qualifications related to irregular expenditure on Personal Protective Equipment (PPE) was not satisfactory.

L. Members noted the need for a more comprehensive collaboration between the DOD and the Defence Industry.

8.

COMMITTEE RECOMMENDATIONS Based on its analysis and overview of the 2020/21 Annual Report, the Committee makes the following recommendations: Recommendations to the Minister of Finance: a.
The Committee notes with concern the DOD’s continuous overspending on Compensation of Employees against the ceiling set by National Treasury that again resulted in irregular expenditure in 2020/21.

This concern requires short-term and long-term solutions.
National Treasury should reconsider assisting the DOD with its plans to cut Compensation of Employees by providing additional funding for an Exit Mechanism and indicate to the Committee whether it is willing to start funding such a mechanism should the DOD show success in the implementation of its plans to curtail Compensation of Employees expenditure.

b.
b.

The Committee is aware of fiscal constraints and noted National Treasury’s previous response to the BRRR that no funds were available for a ring-fenced allocation to fund the midlife upgrades of the SA Navy vessels.

However, the Committee again recommends that National Treasury reprioritise funds to provide a ring-fenced allocation to upgrade the SA Navy’s Frigate and Submarine fleet in the coming years.
The non-availability of naval platforms due to maintenance requirements results in the SA Navy not achieving its targets for coastal patrols and sea hours, thus affecting its constitutional mandate to ensure the territorial integrity of South Africa.

Additional funding over the medium-term for the midlife upgraders are therefore essential.
Recommendations to the Minister of Defence: c. Following consultation with National Treasury, the DOD should indicate to the Committee, before the end of January 2022, how the projected shortfall in Compensation of Employees for 2021/22 will be funded.

If the DOD is required to fund the shortfall from within its existing 2021/22 allocation, a detailed breakdown of shifts and virements should be provided.
The report should also provide an overview of expected savings due to interventions to contain cost pressures related to Compensation of Employees over the medium-term and when a break-even point is expected to be reached.

d. The DOD should update the Committee on a quarterly basis on the progress related to the implementation of interventions to contain cost pressures related to Compensation of Employees.
e. The DOD should update the Committee on a quarterly basis on the progress related to investigations into cases of irregular, fruitless and wasteful expenditure.

f. The Committee recommends that the DOD’s Internal Audit capacity with the concurrence of the Audit Committee, put in place measures to prevent a recurrence of the matters for qualification as noted by the AGSA.

18 270 g. The Committee encourages the Minister to ensure that consequence management is visibly implemented within the Department.
The Committee will, as part of its 2022 oversight programme follow-up in this regard, specifically as it relates to the matter of the PPE acquisition noted by the AGSA.

h. While the Committee expressed understanding that the Covid-19 pandemic impacted on the DOD’s training programme, the Department should ensure that training targets in various programmes are met going forward.
The DOD should provide updates on performance against set training targets as part of its quarterly reporting to Parliament going forward for the remainder of the 2021/22 reporting period.

i.

The DOD should update the Committee as part of its quarterly reports on progress related to reimbursements from the United Nations.

The Minister is further encouraged to resolve this as a matter of urgency by implementing measures to ensure higher levels of compliance with United Nations equipment inspections.
In its next quarterly report to the Committee, the DOD should indicate progress related to flying- and sea-hours for 2021/22 and provide a list of factors contributing to the non-achievement of these targets.

This list will enable to Committee to direct its future oversight to the root causes of non-achievement against set flying- and sea-hour targets.
j. k. The Committee encourages the Minister to re-evaluate the need for 44 Defence Attaché offices, especially given the current financial constraints faced by the Department, and that DIRCO is down- scaling in this regard.

Feedback on this process should be provided to the Committee as part of the quarterly reporting for 2021/22 and a way forward should be contained in the 2022 APP.
l. The Committee encourages the Minister to build a closer relationship between the local Defence Industry and the SANDF to ensure the continued viability of the industry and appropriate local support to the SANDF’s operational capacity.

Report to be considered 19 271 11.

BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON THE 2019/20 ANNUAL REPORT OF ARMSCOR AND THE CASTLE CONTROL BOARD (CCB), DATED 24 NOVEMBER 2021.
This Report consists of two parts, with Part A dealing with the Armaments Corporation of South Africa (ARMSCOR) and Part B dealing with the Castle Control Board (CCB).

The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered the 2020/21 annual reports of the Armaments Corporation of South Africa (ARMSCOR) and the Castle Control Board (CCB), on 10 and 17 November 2021 respectively, reports as follows: 1.
INTRODUCTION 1.1 Mandate of the Committee The Portfolio Committee on Defence and Military Veterans (PCODMV) is mandated to oversee the Department of Defence and Military Veterans (DODMV) and its entities – namely the Armaments Corporation of South Africa (ARMSCOR) and the Castle Control Board (CCB), to ensure that the entities fulfil their mandates through the monitoring of the implementation of legislation and adherence to policies.

These policy guidelines assist the Committee in its oversight activities.
1.2 Purpose of the BRR Report Section 5 (2) of the Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) allows for each Committee to compile a Budgetary Review and Recommendation Report (BRRR) which must be tabled in the National Assembly.
Section 5(3) provides for a BRRR to contain the following: a) an assessment of the department’s service delivery performance given available resources; b) an assessment on the effectiveness and efficiency of departments use and forward allocation of available resource; and c) recommendations on the forward use of resources.
In October of each year, parliamentary portfolio committees compile a BRRR that assess performance given available resources; evaluates the effective and efficient use and forward allocation of resources; and makes recommendations on the forward use of resources.

The BRRRs are also source documents for the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS).
The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.

The Financial year 002/21 saw the beginning of the Coronavirus (COVID-19) pandemic, with a hard lockdown declared on 26 March 2020 to contain the spread of the disease.
The impact of the pandemic and the necessitated government response, were significant for both Armscor and the CCB, as evidenced by especially the reasons for not achieving some of its annual performance goals.

272 PART A: THE ARMAMENTS CORPORATION OF SOUTH AFRICA (ARMSCOR) 1.

INTRODUCTION 1.1 Description of core functions of Armscor The Armaments Corporation of South Africa SOC Ltd (Armscor) was established in terms of the Armaments Production and Development Act (No.
57 of 1968) to satisfy the requirements of the South African National Defence Force (SANDF) in respect of Defence Matériel.

Armscor differs from other entities in the Defence Portfolio as it is largely self-funded and profit-driven.

Parliamentary oversight of Armscor aims to strike the balance between corporate efficiency/sustainability and effective service delivery to the SANDF.

2.
2.

2.1 OVERVIEW OF THE KEY RELEVANT POLICY FOCUS AREAS State of the Nation Addresses (SONA): The SONA was delivered on 13 February 2020, but made no direct reference to Armscor.

However, the SONA did make reference to the need for economic growth and the President noted, for example, that “without growth there will be no jobs, and without jobs there will be no meaningful improvement in the lives of our people.” The Defence Industry plays a potential role in such economic growth.
Armscor, in turn, forms part of the broader Defence-Industry value chain given its position as acquisitions agent for the SANDF and the various commercial facilities it owns.

Other aspects noted in the SONA that have bearing on the broader defence portfolio and Armscor include: • The promotion of local procurement.

• Youth employment.

• Expansion of internship programmes in government.

• Resourcing of defence mandates.

• • Support the employment of the SANDF.


• Spending of public funds and reducing expenditure.

• Acknowledgement that the African continent remains central to governments’ foreign policy Improving implementation of the financial disclosures framework.

engagements.

• Unlocking growth and peacekeeping operations.

2.2 The National Development Plan The NDP and its related policies provide a national framework that will inform the contribution by national departments and public entities.
Aspects of the NDP relevant to Armscor include the following: • Sharpening South Africa’s innovative edge by contributing to global scientific and technological advancement.

• Enhancing investment in Research and Development and by better utilising existing resources.

• Facilitating innovation and enhanced cooperation between public service and technology institutions and the private sector in areas of potential dual use.
• Committing to procurement approaches that stimulate domestic industry and job creation.

• Procuring from and supporting SMMEs, black-owned and black-managed enterprises, and female led- enterprises, the youth and military veterans.

The Medium Term Strategic Framework (2019 - 2024) 2.3 273 The Governmental MTSF Outcomes, to which the DOD will contribute, is supported by Armscor in the following ways: • MTSF Priority 1: A Capable, ethical and developmental state.
Armscor will contribute by ensuring improved governance and accountability through compliance to regulatory frameworks, continuing to fight corruption and fraud through internal control measures, to support other government departments and its people in pursuit of South Africa’s developmental agenda.

• MTSF Priority 2: Economic transformation and job creation.

Armscor will contribute through sustainable acquisition of weapons systems and local procurement of goods and services.
• MTSF Priority 3: Education skills and health.

Armscor will contribute through the provision of internal and external higher education, skills development opportunities and creating foreign learning opportunities.

• MTSF Priority 4: Consolidating the social wage through reliable and basic services.
Armscor will contribute by promoting peaceful and inclusive societies for sustainable development and will participate in the work established by Stats SA by providing statistics of the Sustainable Development Goals as and when required.

• MTSF Priority 5: Spatial Development, Human Settlements and Local Government.

Armscor will contribute through Project Koba Tlala to support women and youth development and economic development in identified rural areas.
• MTSF Priority 6: Social cohesion and saver communities.

Armscor will contribute through its contribution to border safeguarding, cooperation with the SAPS and support to other Government Departments.

• MTSF Priority 7: A better Africa and a better world.

Armscor will contribute by supporting the DOD’s participation in external operations in support of UN and AU peace missions and other regional peace initiatives.
2.4 Ministerial and Armscor Priorities Armscor will play a supporting role in contributing to the following Ministerial priorities: • Defence Strategic Direction – Implementing the SA Defence Review 2015 “DOD Plan to Arrest the Decline”: This priority relates to ensuring the provision of ministerial strategic direction to the DOD over the short, medium, and long term to direct defence policy intent to stabilise and create a sustainable defence force within an effective, efficient and economically managed department able to deliver against predetermined objectives.
• Strategic Resourcing Direction – Revenue generation to supplement the insufficient fiscal allocation: direct a focused effort to identify alternate funding and revenue generation streams that include, among others, maximised reimbursements against agreed upon MOU’s and the sweating of departmental assets.

• Human Resources: Maintaining the SANDF establishment Force Levels.

• Organisational renewal: Ensuring appropriate organisational form and structure.
• Capability Sustainment Direction: The serviceability and availability of current main operating systems and Prime Mission Equipment must be maintained at a set level.

• Ordered defence commitments: Increased contribution to the National Developmental Agenda.

• A stable and financially viable Armscor to deliver on its mandate: Armscor is pursuing strategies to alleviate the funding crisis and make it financially viable.

3.
3.

2019/20 BRRR RECOMMENDATIONS During the BRRR process, the PCODMV identified the following areas for monitoring by the Committee throughout the 2020/21 financial year with regards to Armscor: • The Committee congratulates Armscor on achieving a clean audit from the AGSA for 2019/20.
274 • Armscor should provide the Committee with a full report of the repair and maintenance status of the SA Navy’s frigates and submarines and what the long-term impact will be of the current lack of maintenance due to a lack of funding.

• The DOD, Armscor and Denel should jointly re-evaluate the feasibility of Project Hoefyster and present the Committee with a way forward.

Key to this outcome should be a focus on SANDF capability as well as fiscal stability.
The Minister, subsequent to the Armaments Acquisition Council meeting where a decision will be taken on Project Hoefyster, should provide detailed written feedback to the PCDMV on the outcome and the way forward.

• Armscor should provide the Committee with a comprehensive list of all funds paid to Project Hoefyster thus far, losses incurred, existing litigation related to Project Hoefyster, and potential litigation that may materialise over the MTEF, should delays with Project Hoefyster continue.
• Armscor should provide the Committee with a report on the operational impact of the lack of industrialisation of the A-Darter project on the SA Air Force’s capabilities as well as the status of commercialisation of the A-Darter project.

• The underutilisation of defence materiel disposal is of specific concern given the need for revenue generation in the DOD.
Armscor and the DOD are urged to speed up delivery in this regard and report back to the Committee on the status of the expedited disposal initiative.

• Armscor should report to the Committee to what extent it is involved in the management and disposal of obsolete and redundant ammunition on behalf of the SANDF.

The entity should also elaborate on the status of such ammunition under its control.
• Armscor should provide the Committee with a report on the exact financial impact of the deadlock between the National Conventional Arms Control Committee (NCACC) and Rheinmettal Denel Munitions (RDM) on Alkantpan as well as the plan to resolve this impasse in order for Alkantpan to generate much needed revenue.
• The Committee encourages Armscor to seek commercial opportunities, including the sweating of assets, as a means of raising revenue for all its research and development institutes amid the decreasing DOD acquisition and funding.

• The Committee welcomes efforts to re-establish an internal combustion engine maintenance capability at the Armscor Dockyard.

Armscor should provide the Committee with quarterly updates on progress in this regard.
• Armscor, as part of the Defence Industry, should enhance its transformation efforts to align itself with • the Defence Industry Charter.

It is recommended that Armscor should re-instate the target ‘percentage increase in the commercial income from Research and Development facilities’ in all its Annual Reports over for MTEF.
• Measures should also be put in place to improve revenue generated from the Business Enablement Business Unit and Armscor should report back to the Committee in this regard • The Committee encourages renewed engagement between Armscor and Denel to ensure the sustainability of existing and future defence contracts.

• Armscor should ensure that Intellectual Property at Armscor and the broader Defence Industry is protected.
• The Committee urges Armscor to be fiscally responsible and, in the context of current financial constraints, maintain its undertaking that it will not pay bonuses in 2020/21.

• The Committee welcomes the appointment of a new Armscor Board and urges to Board to ensure the sustainability of Armscor, the promotion of the broader defence industry and the provision of quality service to its main client, the DOD.
• The Committee encourages the Minister of Defence to relay to Cabinet the dire consequences of any potential collapse of Denel to Armscor, the broader defence industry and the SANDF’s operational capability.

4.

OVERVIEW OF THE 2020/21 ARMSCOR PERFORMANCE 275 In 2020/21, Armscor continued to provide support to the DOD as its primary client.

It is, however, operating under increasing financial constraints, as is the broader Defence Industry, due to funding constraints in the defence environment.
Of particular concern is the decreased defence allocation, resulting in limited acquisitions for the SANDF and therefore reducing acquisition work for Armscor over the MTEF.

This requires Armscor to diversify its income stream to generate additional income.
Based on the noted challenges, the Armscor Board approved several initiatives to ensure the entity’s sustainability, most notably the following: • The Commercialisation Strategy focuses on Armscor as a corporate entity with an intent of conducting business beyond its traditional offerings.

• The Africa Focused Strategy seeks to leverage on the opportunities that are emerging on the continent.
• The Partnership Strategy focuses on developing partnerships in the defence sector, both locally and • internationally.

Implementing voluntary severance packages, streamlining the organisation and refocussing of various departments in order to implement the strategies.

In addition, Armscor and the DOD are under increasing pressure due to the instability at Denel and the inability of Denel to deliver on Defence contracts that were contracted through Armscor.
Despite these challenges, Armscor managed to perform relatively well against set targets in its various programmes.

4.1 Acquisitions The acquisition responsibility of Armscor can be broadly classified into two main categories being, capital acquisition (funded by the DOD’s Special Defence Account) and system support and procurement (funded by the General Defence Account).
In the 2020/21 financial year, Armscor managed and executed contracts worth R12.409 billion (similar to 2019/20), including the following: • Maintenance and support contracts worth R4.780 billion (compared to R4.4 billion in 2019/20).

• Capital acquisition contracts managed worth R7.628 billion (compared to R7.7 billion in 2019/20).
Despite the impact of Covid-19 that caused delays in the delivery of some programmes, a number of projects or sub-projects were successfully completed and new capabilities were delivered to, and taken into operation by, the SANDF: • 40mm Automatic Grenade Launcher Weapons System – This project was completed with the delivery of the full requirement of the weapons to the Special Forces Brigade on 7 October 2020.
• Mass Field Feeding System – The requirements for the 50- and 200 man kitchens were delivered and completed while the first number of the transport trailers were delivered to the SA Army.

The remainder of the transport trailers will be delivered early during 2021/22.
• Mobile Tented Accommodation System – The project is nearing completion and delivered among others, the full requirement of small, medium and large accommodation and amenities tents, vehicle tents, ablution facilities, and shower facilities to the SA Army.

The project will be completed during 2021/22.

• Mobile Road Construction and Earth Moving System – This project was completed with the delivery of truck- tractors, low-bed semi-trailers and truck tractor and trailer combinations.
• Mobile Water Purification and Bottling System – This project was completed with delivery of the total requirement for mobile water purifiers on 31 March 2021.

• Aviation Rescue and Fire Fighting Vehicles – This project was completed with the delivery of medium crash tenders and the official handover of the project will take place during 2021/22.

276 Armscor further managed acquisition and maintenance programmes for several larger defence systems, of which the following should be noted.
(The majority of these acquisition programmes are multi-year acquisitions and projects will span several years.

The ongoing monitoring of these projects to ensure on-time delivery and value-for-money is thus essential): Maritime systems.

A Hydrographic vessel is being purchased for the SA Navy under Project Hotel.

Construction was set to start in 2018 and this was achieved through a steel-cutting ceremony hosted on 30 November 2018.
Durban-based Southern African Shipyards (SAS) is the main contractor for Project Hotel to supply the SA Navy with a new hydrographic vessel and ancillary equipment.

At the end of 2019/20, construction of the main vessel was 64% complete, and construction of the three small motor boats was 75% complete.

By the end of 2020/21 the three small motor boats and Sea Acceptance Tests thereof were completed.
The overall delivery schedule however, had to be extended due to Force Majeure claims (COVID-19 and strikes).

The contract was amended accordingly.

Furthermore, an acquisition process for three new Inshore Patrol Vessels (IPVs) is in progress under Project Biro.

Previous Annual Reports noted that, by December 2017, the contract was awarded for the construction of the three IPVs.

The contract was awarded to Cape-Town Based Damen Shipyards.
The 2019/20 Annual Report notes that the IPV contract is progressing according to schedule and that the first vessel is set to launched by the end March 2022.

The 2020/21 Annual Report notes that construction of the first vessel has been completed and launched during the reporting period.

The vessel is currently being prepared for commissioning and testing in order to be delivered towards the end of this calendar year.
The keel of the second vessel has been laid and manufacturing of the ship sections are halfway complete.

Finally, as reported in previous years and observed during the PCODMV oversight visit to Simon’s Town in 2019, midlife upgrades on both the SA Navy’s frigates and submarines are on hold due to a lack of funds.
The fact that these midlife upgrade have been put off for multiple years not only impact the SA Navy’s operational capacity, but may well result in more expensive upgrades being required in the long-term.

Airborne systems.

The Annual Report notes that the A-Darter Air-to-Air missile was completed at the end of 2019.

This marks a significant milestone and offers a unique domestic capability to the SA Air Force.
However, the industrialisation and large-scale production of the A-Darter continues to be delayed by difficulties in Denel.

The integration of the missile system on the SA Air Force Hawk aircraft has subsequently been deferred as well.

A contract was placed with Denel in March 2015 for the industrialisation and subsequent production of A-Darter missiles for the SAAF.
Progress on the preparation of the manufacturing processes was slow and manufacturing of subsystems for the first batch of missiles has been delayed by almost two and a half years due to financial challenges experienced by Denel and consequent non-delivery of subsystems by their suppliers and subcontractors.
Delivery of the first batch of trainer missiles and initial logistic support capability was scheduled for the first quarter of the 2020 calendar year, but due to the COVID-19 lockdown it is now expected by the middle of 2021.

Production and delivery of the operational missiles is currently at risk due to the financial difficulties being experienced by Denel and to a large extent by the loss of critical capabilities in Denel.

Landward acquisitions.


The most significant acquisition in the landward defence environment is Project Hoefyster which relates to the purchasing of new Infantry Fighting Vehicles for the SA Army to replace the ageing Ratel fleet which has been in service since 1976.

An order for 244 new vehicles was placed with various variants to be delivered to the SANDF.
While the first batch of 21 vehicles have been delivered from Finland, 277 local manufacturing by Denel has seen significant delays of several years with the most recent year’s reporting by Armscor as follows: • 2019 Progress: The 2018/19 Armscor Annual Report noted that the project was already 43 months behind schedule by the end of the 2018/19 financial year.
Furthermore, “during December 2018, Denel formally notified Armscor and the DOD that it is unable to deliver against the current contract baseline in terms of technical specifications, delivery schedule and price as contracted.
The way forward with the programme is being addressed within Armscor and the DOD, and possible alternative approaches with associated implications to mitigate the financial and capability risk to the DOD is being investigated.” • 2020 Progress: The industrialisation of vehicle assembly at Denel Vehicle Systems has not shown any significant progress since the previous reporting period, mainly as a result of parts shortages due to non-payment of suppliers.
The delivery of the first Battalion consisting of 88 vehicles was contractually scheduled to be completed by May 2019.

This date was however not achieved due to delays in the development and industrialisation process, and the latest indicated delivery date for the first battalion is June 2022, however with a low measure of confidence.

• 2021 Progress: The development phase of the programme was contractually scheduled to be completed by May 2012 (original date), but has still not been completed.
The expected new completion date is December 2023.

The delays are mainly attributed to both technical and financial challenges within Denel.

During the reporting period, it has also become clearer that Denel is experiencing an increasing lack of capacity and capability, and this has exacerbated the delays on the programme.
Armscor and the DOD has been engaging significantly at various management levels regarding the status of the programme and the impact of the significant delays that have been experienced to date.

In addition to Project Hoefyster, Phase 1 of a new Ground Based Air Defence System (GBADS) for the SA Army was delivered to the Air Defence Artillery Formation.

This focused on refurbishing the radar-guided system 35mm guns of the Air Defence Artillery Formation.
A second phase of the GBADS is currently under way and focuses on the inclusion of the missile Short Range Air Defence system capability but is currently not funded.

The project has made reasonable progress on the design and development activities towards the establishment of the initial Product Baselines of the new product systems.

This is despite being severely impacted by delayed Client Furnished Equipment, limited resources at Denel, and Covid-19.
4.2 Defence Industrial Participation Defence Industrial Participation (DIP) relates to the obligation of a foreign supplier to reciprocate defence related business in South Africa as a result of a Defence acquisition.

In 2020/21, Armscor managed 14 such agreements, which is lower than the 17 managed in 2019/20.

As in previous years, only one of the current DIP agreements are not related to the military (related to a SAPS pistol acquisition project).
The value of DIP credits being managed remained similar to the previous financial year and comes to a total of R23.326 billion compared to R23.065 billion in 2019/20.

Outstanding DIP obligations are as follows: • DIP agreements related to the Strategic Defence Packages (1): R0 • DIP agreements related to ongoing defence projects (13): • DIP agreements related to the SAPS (1): R550 million R24 million 4.3 Defence Materiel disposal 278 Armscor also manages the disposal of defence equipment for the DOD.
Armscor’s Defence Disposal Solutions (DDS) mandate provides for the disposal of excess and obsolete defence matériel on behalf of the DOD.

Defence matériel to be disposed includes items such as ammunition, aircraft, spares, vessels, and land-and/or air-based equipment.

Disposal of the defence matériel is carried out in accordance with the requirements of the DOD and regulatory authorities such as the NCACC and the National Non-Proliferation Council.
The value of disposal orders concluded by Armscor in 2020/21 were not disclosed in the Annual Report.

The last time disposal orders were disclosed was in 2018/19 when Armscor concluded orders to the value of R8.5 million.

However, Armscor noted that “DDS concluded a partnership agreement with Defence Equipment Sales Authority (DESA) of the UK Ministry of Defence to market and sell its surplus stock on the continent.
This opportunity is expected to generate income for both DESA and Armscor while also creating an opportunity for the industry to upgrade, refurbish and/or provide after sale service to the prospective client.” 4.4 Research and Development The bulk of research and development services took place at Research and Development Facilities such as the Gerotek and Alkantpan test facilities as well as Hazmat protective systems.
Alkantpan is a munitions test range in the Northern Cape Province and attracts a number of local and international clients.

Several international and domestic clients perform tests at the facility.

Covid-19 had a severe impact on operations at Alkantpan, with test being conducted decreasing from 124 in 2019/20 to 93 in 2020/21.

A further challenge for Alkantpan was the lack of support of critical mission equipment by Denel as the Original Equipment Manufacturer due to Denel’s financial situation.
Alkantpan has been challenged especially by the situation where spares are not readily available from Denel.

Hazmat produces respiratory equipment for military and commercial purposes.

The demand for military respiratory products diminished and Hazmat successfully transformed the business from only supplying the DOD with Chemical and Biological Warfare filters to a range of commercial PPE products, which are sold to the safety industry.
During 2020/21, sales increased due to an unfortunate outbreak of the Covid-19 pandemic.

Hazmat’s sales for the financial year (R17 million) exceeded budgeted sales by 10%.

A major service on the carbon plant and resulting improvements are planned and budgeted for early in the new financial year as part of continual improvement initiatives.
Other defence science technology institutes that receive the bulk of their funding from the DOD include: • Gerotek: Gerotek Test Facilities was established to meet South Africa's needs to test defence-related products and to maintain key facilities, equipment, capabilities and technologies for that purpose.

Gerotek was severely affected by the Covid-19 pandemic as international and local clients cancelled events at the facility.
The Annual Report notes losses of R11 million due to cancelled events and projects at Gerotek.

• Armour Development: Conducts defensive and reactive armour development.

Funded by the Research and Development Board.

During the reporting period, all significant milestones on armour protection that could be used for current and future armour systems for the DOD were achieved and completed.

• Protechnik Laboratories: Focuses on chemical and biological defence.
Protechnik’s operations in 2020/21 revolved around the Covid-19 pandemic as it designed, tested and evaluated hand sanitiser and surface disinfectant formulations with adherence to guidelines from the World Health Organisation.

The pilot manufacturing facility at the Technopark site had to be upgraded and semi- automated, resulting in an 80% increase in production capacity from 960 litres of product per eight (8) hour shift to 5 400 litres, with a revenue of R10.2 million.
Further, Protechnik raised R4.2 million by conducting tests to evaluate the effectiveness of particle filtering masks and surgical masks.

279 • Institute for Maritime Technology (IMT): The institute provides techno-military expertise to support naval decision-making.

The IMT is involved in various programmes, including: o Establishing a Situational Awareness Centre at Naval Base Durban to provide the SA Navy with a capability to monitor the harbour, ocean and key point facilities in Durban.
o Developing a Maritime Domain Awareness system that provides the SA Navy with a recognised maritime picture of the South African coastal area (handed over in March 2021).

o Development of the Ultrasonic Broken Rail Detector, which has significant commercial potential.

Previous Annual Reports noted that the system was tested in India, but no further mention has since been regarding any successful international sales.

• Ergonomics technologies: Focus on integrating ergonomics into the SANDF.
• Defence decision support institute: Provision of decision support to the DOD.

This capacity continues to be severely affected by the reduction in the DOD’s acquisition funding.

• Flamengro: During 2020/21, a state-of-the-art test facility for the testing of specialist materials, sensor calibration, blast wave testing, and impact testing for armour was commissioned.

4.5 The Armscor Dockyard The Armscor Dockyard serves as the primary maintenance supplier to the SA Navy.
As in previous years, the Dockyard continues to face strain due to financial concerns and the impact thereof on the Dockyard’s ability to provide all required services to the SA Navy.

As such, a Renewal Strategy was developed to eliminate the institution’s financial deficit and increase efficiency.

The Renewal Strategy is to be implemented over three years, with the first phase focusing on eliminating the financial deficit.
The 2019/20 Annual Report noted that progress to date yielded the desired results and the implementation is ongoing.

However, the 2020/21 Annual Report did not note further progress with the Renewal Strategy.

The Armscor Dockyard’s performance is based on a service level agreement between the SA Navy and Armscor.

Updates on the maintenance of specific classes of vessels include: Submarines: • SAS Manthathisi: The maintenance activities took place and the boat was successfully undocked.
The boat is operational and will be undergoing further scheduled maintenance and repairs in the second half of the year 2021.

• SAS Charlotte Maxeke: Additional funding to complete the refit of the boat by end of calendar year 2023 has been made available by the SA Navy.

Frigates: • SAS Mendi: After eight years of being under a maintenance period, the vessel managed to conduct its first test and trail on the diesel generators that were installed by Dockyard.
Sea trials are now in progress to get the vessel operational.

• SAS Spioenkop: Systems interface and integration testing is ongoing.

The vessel is operational.

Two other factors regarding the Dockyard may be noted.

First, the Annual Report noted that the age of the equipment at the Dockyard is concerning.

As a result, a preventative maintenance programme has been implemented, focusing on maintenance of critical areas with a secondary drive to manage obsolescence.
Second, in previous years it was indicated that amid current financial constraints, Dockyard embarked on an initiative to generate income and augment the shortfall in funding received from the SA Navy through commercial activities.

This is done by engaging local marine and manufacturing commerce to utilise idle capacity to generate income.

No specific updates on commercial Dockyard activities were provided in the 2020/21 Annual Report.

280 5.
280 5.

HUMAN CAPITAL MANAGEMENT The 2020/21 Annual Report indicates that Armscor, including the Armscor Dockyard, has a staff complement of 1 477, which is lower than the staff complement of 1 556 in 2019/20.

In terms of Employment Equity, 83.48% of the Armscor Human Resources contingent are black.

This is a further increase from 2019/20 when the percentage stood 82.97%.
The 2020/21 Annual Report further indicates that 39.20% of employees are female, which also represents an increase from the 38.43% in the preceding year.

Armscor should also be lauded for its focus on capability retention and succession planning in recent years.
The 2020/21 Annual Report, however, states that the “succession planning strategy required a shift in thinking from “succession planning”, which implied an event, to “succession readiness” which required leaders to start thinking in terms of ongoing development, capacity and capability building and the identification of high potential employees.” Crucially, Armscor also notes that “with the downturn in active projects in the immediate future, the Acquisition Department intends to retain a portfolio of capabilities and expertise in identified strategic technology domains – to ensure that the capability will exist to capably execute anticipated future requirements of the DOD, and to remain relevant.” A positive initiative from Armscor that has been in place for several years is that it continues to provide skills development through a number of programmes, the following of which are noteworthy: • Bursaries.
Armscor sponsored 34 students with bursaries to study at different institutions, of which the majority were in engineering and science.

Seven (7) of these completed their studies while 21 others remain on the programme.

One (1) student dropped out and five were suspended due to poor performance.

• Defence Engineering and Science University Programme.

In 2020/21, 67 students were funded for the academic year.

This is lower than the 104 noted in the previous year.
A total of 43 students were postgraduates and 24 were undergraduate students.

• Talent Development Programme.

For 2020/21, 42 candidates participated in this programme.

The students were placed in different business units across the entire Corporation.

6.

PERFORMANCE OVERVIEW Armscor has two categories of performance measurement as follows: • Performance against the Service Level Agreement Outputs.

(13 of 14 targets set for 2020/21 achieved [92.9% targets achieved]).
• Performance against Group Strategic Outputs.

(12 of 17 targets set for 2020/21 achieved [70.6% targets achieved]).

The table below highlights the targets not achieved or only partially achieved.
Selected Key Performance Indicators not achieved/partially achieved by Armscor in 2020/21 Objective KPI Goal Achievement Comments Performance against the Service Level Agreement Outputs Procurement Average time taken to convert DOD requirements into orders including: 145 days 147.47 days Target not achieved 281 Objective KPI Goal Achievement Comments Performance against the Service Level Agreement Outputs 145 days for SDA acquisition programmes.
Performance against Group Strategic Outputs Revenue Generation Infrastructure renewal Stakeholder management Revenue generated from the Business Enablement Business Unit.

Implementation of the approved application system renewal plan.

Conduct integrated employee engagement survey and determine new baseline.

Transformation of corporation Improving female representation (overall).
Transformation of corporation Total number of employees with disabilities R33.7 million R16.9 million Target not achieved (Target also not achieved in 2019/20) 80% 60% Target not achieved (Target also not achieved in 2019/20) % % Target not achieved Improvement to be determined Improvement The New Baseline 2020/21: remained High Engagement state: 14% unchanged Moderately engaged: 68% 40% 39.20% Target not achieved Disengaged: 18% (Target also not achieved in 2019/20) 28 25 Target not achieved 7.
FINANCIAL STATEMENTS AND KEY NOTES FROM THE AUDITOR-GENERAL The total comprehensive income of the Group decreased from a surplus of R179.5 million in 2020/21 to a surplus of R124.3 million in 2020/21.

In line with the challenges faced due to Covid-19 in 2020/21, revenue generated by Armscor decreased from R1.760 billion in 2019/20 to R1.591 billion in 2020/21.

Revenue generated is largely dependent on a state grant, but comprises the following categories in the table below.
The table reflects the decrease in income from the sale of goods and services as well as a decreased income on interest and other income.
Revenue category Sale of goods and services Government grants Interest Rental Other income 2019/20 2020/21 R389.6 million R301.8 million R1.176 billion R1.113 billion R104.7 million R89.1 million R68 million R22 million R71.4 million R15.1 million 282 The following additional financial matters should also be noted: • Employee-related costs increased from R1.118 billion in 2019/20 to R1.123 billion in 2020/21.

This constitutes 82% of Armscor’s expenditure.


• The detailed financial statements note that the gain on disposal of assets and liabilities decreased from R18.114 million in 2019/20 to R1.202 million in 2020/21.

• No surplus was made from any joint ventures (compared to R2.4 million in 2019/20).

Payment to the executive directors: • Payment to the executive director positions decreased from R8.796 million in 2019/20 to R8.285 million in 2020/21.
• The main contributor to the decreased payment to executive directors relates to a reduced payment for • ‘allowance’ from R631 000 in 2019/20 to R339 000 in 2020/21.

Inter-year comparison of executive salaries is difficult given that there were two CEO’s in the previous year (2019/20).

However, a review of the basic salary of the CFO indicates only a marginal increase from R2.398 million in 2019/20 to R2.425 million in 2020/21.
Payment to non-executive directors: • Fees and Committee remuneration to non-executive directors decreased significantly from R6.168 million in 2019/20 to R2.706 million in 2020/21.

Payment to executive committee members: • Payment to executive committee members remained stable between 2019/20 and 2020/21.

However, payment to Mr JS Mkwanazi increased from R3.636 million in 2019/20 to R4.819 million in 2020/21.
Mr Mkwanazi retired from Armscor effective 31 March 2021, so the payment may relate to retirement benefits, but clarity on this payment should be provided.

Fruitless, wasteful and irregular expenditure In 2020/21, expenditure amounting to R6 000 (R395 000 in 2019/20) was recorded and deemed to be fruitless and wasteful.

The expenditure was as a result of penalties charged.

An investigation was performed and found no person could be held liable as delays were directly linked to the lockdown.
Additionally, expenditure of R929 000 (R1.937 million in 2019/20) related to previous years was written off after completion of investigation.

Further fruitless expenditure amounting to R4.571 million were incurred on behalf of the DOD as a result of penalties charged.

Investigations are ongoing and yet to be concluded.
Irregular expenditure R6.927 million was noted during 2020/21 (R12.449 million in 2019/20), including the following: • R5.321 million relates to security cost which is deemed to be irregular.

The cost was incorrectly approved as sole source during the previous financial year and a new procurement process was followed where a new supplier is now in place since October 2020.

• R337 000 related to contract extensions above the National Treasury threshold and not following competitive bidding process.
• R24 000 relates to services that were provided by a non-tax complaint service provider.

Consequence management was implemented in line with internal processes.

283 Finally, ongoing litigation against Armscor should also be considered: • € 192 million against Armscor for services allegedly rendered by Plaintiff’s (Beverly Securities Ltd and Beverly Securities Inc.) in establishing a clandestine Portuguese channel during the 1980’s for transportation of 50 Oryx helicopters.
The case is only awaiting expert witness submissions and a court date is awaited.

• € 17.62 million and R258 168 against Armscor and Denel by Patria Land Systems (this relates to Project Hoefyster).

The Plaintiff (Patria) claims that Denel and/or Armscor did not accept work delivered in accordance with an agreement entered into between Denel and the Plaintiff and furthermore demand payment of a number of invoices issued to Denel.
The Plaintiff further claim that Armscor and Denel have entered into a stipulatio alteri for the benefit of Patria in terms of which Armscor would be liable for the invoices issued by Patria to Denel.

The Plaintiff has not approached the Court for a trial date and has submitted a settlement proposal wherein it is required that Armscor make payment in respect of the additional claim in respect of the goods packages.
Armscor did not accept the proposal as Armscor does not have a contractual relationship with the Plaintiff.

In terms of the audit findings for 2020/21, Armscor obtained an unqualified audit from the Auditor-General of South Africa (AGSA) for 2020/21.

The AGSA made one specific note for relevance to the Committee include related to internal control deficiencies.

The AGSA notes that “senior management did not exercise sufficient oversight responsibility over financial reporting.
This was mainly a result of insufficient reviews by management, combined with system-imposed limitations linked to the legacy systems used to compile the financial statements, which resulted in material adjustments impacting non-compliance.” Furthermore, in its presentation to the PCDMV on 10 August 2021, the AGSA noted that ‘Armscor submitted financial statements that contained material errors and this resulted in non-compliance with legislation.’ 8.
COMMITTEE OBSERVATIONS: ARMSCOR The Committee made the following general observations on the 2020/21 Annual Report: a.

The Committee required clarity on whether bonuses were paid during 2020/21 to the CEO, CFO and Board Members of Armscor, specifically in the light of the fiscal constraints under which the entity functions.

b.

Given the need for Armscor to diversify its revenue generation, Members emphasised the need for the Business Unit to function optimally and explore means to generate revenue.
c. Members requested clarity on the potential for midlife upgrades for the SA Navy’s frigates and submarines from Armscor’s perspective.

Armscor indicated that no funding is available for these projects.

For the Frigates, no mid-life upgrade will take place to sustain frigates capability until 2033 as per the Staff Requirement while no mid-life upgrade will take place for Submarines until 2035 as per the Staff Requirement.
Armscor proposed the adoption of Spiral Acquisition approach through various funding sources in case of limited or no funding.

d. Members requested an update on the commercial work from the Dockyard and was informed that the Dockyard could not do much commercial work due to the amount of decommissioned vessels consuming space in the Dockyard.

They are up for disposal but the process to dispose of these systems is taking longer than anticipated.
e. Members expressed concern around allegations of break-ins at the Armscor Dockyard and requested Armscor to respond to these allegations.

Armscor noted that there were two night-time break-ins 284 during the year where some brass and copper were stolen.

During the third incident, which occurred in daytime, the perpetrators were caught.

The Military Police were notified and they opened a case of theft with the police.
The Dockyard management initiated a disciplinary process thereafter the two employees were eventually dismissed.

f. Members inquired whether any fraud procurement investigations were under way at the Armscor Dockyard.

Armscor noted that there was an investigation done at the Dockyard due to alleged procurement irregularities.

Some officials were put on precautionary suspension and four people were charged and the disciplinary processes are in progress.
There was also an allegation of falsified medical certificates being used and this matter was brought to management’s attention on the 9th November 2021.

The employee has since been suspended and the disciplinary hearing will sit shortly.

g. The Committee welcomed the good progress with the delivery of the Project Biro vessels to the SA Navy, but requested further clarity on final delivery dates and any potential delays.
Armscor indicated that the next two vessels to be delivered will likely be delivered ahead of schedule.

However, Armscor also highlighted the financial risk to the project noting that there is insufficient funding available to complete the project as no allocation for CPI and Rate of Exchange increases have been made since 2017.

There is an estimated shortage of R184 million.

The DOD is aware that sufficient funding needs to be allocated to cover the contractual commitments.
h. The Committee noted with concern the situation at Denel Dynamics and its inability to make progress with the commercialisation of the A-Darter missile system.

Members also raised the potential negative impact on the operational capacity of the SA Air Force.

i.

The Committee expressed extreme concern around the continued, decade-long, delay in Project Hoefyster and therefore questioned the continued viability of the project.

These concerns were previously raised by the Committee as well.
The Committee therefore required clarity on the project from the Armament Acquisition Council and Armscor.

Members also questioned whether the technology developed for Project Hoefyster has not become obsolete or dated and whether another locally manufactured product should not rather be sourced.

Armscor noted that the project phase 1 is late by more than 9 years and Denel does not have money to complete the project.

Denel has also lost resources and they owe suppliers.
It was also noted that a decision on the Armament Acquisition Council is still pending.

Armscor further admits that some technology that was originally part of Project Hoefyster, has become obsolete.

j.

Members questioned Armscor on whether it sold any Personal Protective Equipment (PPE) to the DOD in 2020/21 and was informed that Armscor sold sanitizers to the value of R1.49 million to the DOD.
k. Members requested Armscor to report on progress with regards to demolition of obsolete ammunition at its various facilities for 2020/21, especially the De Aar and Jan Kempdorp ammunition depots.

Armscor indicated that the demolition of obsolete ammunition is the responsibility of the SANDF.

l. Members requested Armscor to provide a breakdown of its Human Resources component in terms of race, gender and age-group in future reports.
Armscor indicated that 10.55% of its workforce is aged between 20 and 30, 29.74% between 31 and 40, 30.48% between 41 and 50 and 23.29% between 51 and 60. m. The Committee noted that for 2020/21, there were only 15 projects with a funding allocation for the year compared to 39 in 2019/20 and requested clarity on the financial impact thereof.

Armscor indicated that this relates to the reduced DOD budget allocation.
Since 2018/19, no new projects were initiated, and only projects that had already been contracted were funded within the capital budget.

The number of funded projects are reducing on an annual basis, as projects are completed and no new projects are initiated.

285 9.

COMMITTEE RECOMMENDATIONS Based on its analysis and overview of the 2020/21 Annual Report, the Committee makes the following recommendations: a.

The Committee questions the payment of increases and bonuses to the CEO and CFO.
On 8 June 2020, Armscor made a presentation to the Committee in which it notes that, as a means to reduce the impact of the Covid-19 pandemic, it is considering not to pay salary increases and performance remuneration which was expected to result in R89 million savings.

The Armscor Board should therefore provide the Committee with written feedback, before the end of January 2022, as to the reasons for the payment of salary increases and bonuses amid significant fiscal constraints in 2020/21.
b. Armscor previously indicated to the Committee that Armscor DDS concluded a partnership agreement with Defence Equipment Sales Authority (DESA) of the UK Ministry of Defence to market and sell its surplus stock on the continent.

Armscor should provide the Committee with an update, before the end of January 2022, on progress in this regard and whether this has resulted in any revenue generation for the entity.
c. The Committee congratulates the Armscor Business Unit in generating R16.9 million additional revenues for the entity amid Covid-19 constraints.

The various successes in engagements with international clients is particularly commendable.

Given that international travel has largely recommenced, more business opportunities are likely to be explored and the Committee wishes to see a sustained increased in funds generated by the Business Unit.
d. While the midlife upgrades of SA Navy platforms are not in Armscor’s control, the Committee expresses its concern around the fact that all funding for the projects have been surrendered, implying that no mid-life upgrade will take place.

To this extent, the Committee again recommends that National Treasury reprioritise funds to provide a ring-fenced allocation to upgrade the SA Navy’s Frigate and Submarine fleet in the coming years.
e. The Committee welcomes the consequence management implemented by the Dockyard with several employees being suspended or charged with cases related to fraud and theft.

Armscor should provide the Committee with a written follow-up letter on the outcome of the disciplinary action taken against four people charged in relation to fraud procurement.

f. Given the urgent need for revenue generation by Armscor, the delays in the disposal of decommissioned vessels is a concern to the Committee.
Armscor should, before the end of January 2022, provide the Committee with a written update on plans to speed up the process and what the additional revenue-generation plans for the Dockyard are in 2022/23.

g. The Department of Defence and Armscor should, before the end of January 2022, jointly provide the Committee with a written response as to how the current shortfall of R184 million for Project Biro will be funded.
h. Armscor is encouraged to speed up the multiparty negotiations to revive the commercialisation of the i. A-Darter missiles and present the way forward in its 2022/23 Performance Plan.

It is evident that the continued delay and Project Hoefyster has now come to a point where any future viability of the project is placed in significant doubt, especially since Denel will not be able to deliver and that some of the technology has become obsolete.
The fact that the Armament Acquisition Council has not published a decision on the matter since 2019, following a recommendation from Armscor, is of further concern.

The Committee requests that, before the end of January 2022, the Minister of Defence and the Armament Acquisition Council submit in writing to the Committee the reasons for the delay in a decision on the future of Project Hoefyster, by when a decision can be expected and what the likely way forward is.

j.
j.

The Committee recommends that Armscor provides a breakdown of its Human Resources component in terms of race, gender and age-group in future Annual Reports.

286 PART B: CASTLE CONTROL BOARD (CCB) 1.

DESCRIPTION OF CORE FUNCTIONS OF THE CASTLE CONTROL BOARD The mandate of the Castle Control Board (CCB) is derived from the Castle Management Act, 1993 (No.
207 of 1993) which requires it to preserve and protect the military and cultural heritage of the Castle of Good Hope (CGH), South Africa’s oldest architectural structure - on behalf of the Minister of Defence and Military Veterans.

Both the National Heritage Resources Act (No.

25 of 1999) and the Defence Endowment Property and Account Act (No.

33 of 19922) also cover certain aspects of the mandate.

This Report will focus on the: • • • • 2.


2.1 Strategic Overview for the 2020/21 Financial Year with specific reference to Strategic Priorities of Government and Strategic Priorities of the CCB.

Overview and Assessment of Financial Performance with specific reference to the Appropriation statement for the 2020/21 financial year; Financial statements; and Findings of the Auditor General of South Africa.

Overview and Assessment of Programme Performance focusing on the four Programmes.
Governance and Human Resources.

STRATEGIC PRIORITIES OF GOVERNMENT AND THE CCB.

State of the Nation Address 2020 President Cyril Ramaphosa, during his SONA on 13 February 2020, made the following remarks that can be related to the mandate and activities of the CCB: • • • • “We resolved to cure our country of the corrosive effects of corruption and to restore the integrity of our institutions.” The CCB has a fully-fledged Fraud Prevention Policy that also addresses criminality.
It aims to make losses due to fraud and corruption intolerable and will institute training covering these aspects.

“Secondly, our history demands that we should improve the education system and develop the skills that we need now and into the future.” The CCB annually has a number of student leaderships being offered and for the year under review, had 4 interns.
“Given the key role that small businesses play in stimulating economic activity and employment – and in advancing broad-based empowerment – we are focusing this year on significantly expanding our small business incubation programme.” The CCB assists small businesses by inter alia ensuring it procure locally as well as paying their invoices within the stipulated 30 days.
“To support the growth of the tourism industry, the SAPS will increase visibility at identified tourist attraction sites,” and “We are launching a Tourism Equity Fund this year to stimulate transformation in tourism.” Given the CCB’s heavy reliance on tourism, the views of the President were welcomed to the extent that the tourism industry was being promoted and assisted, which will have a positive effect on the CCB.
2.2 National Development Plan and the Medium Term Strategic Framework (2020 - 2025) Priorities As opposed to previous years, the CCB’s Annual Reports for FY2019/20, and FY 2020/21 do not make any reference to the NDP and the only reference to the MTSF is by the Auditor General.

287 3.

SUMMARY OF PREVIOUS RECOMMENDATIONS OF THE COMMITTEE 3.1.

2020 BRRR Recommendations for the CCB The Portfolio Committee, after considering the Draft 2019/20 Annual Report of the CCB, makes the following recommendations: a.
The Committee recommends that the CCB should update it on the steps it has taken to address the matters raised by the AGSA.

b.

The CCB is requested to update the Committee on the implementation of the Integrated Conservation Management Plan on a regular basis to ensure that any challenges in this regard is timeously identified and addressed.
c. The Committee recommends that all efforts should be made to address the Going concern challenges as identified by the AGSA and that the CCB should appraise the Committee on progress in this regard on a regular basis.

d. The Committee encouraged the CCB to enhance its efforts to the UNESCO World Heritage Site listing and wants it to brief the Committee on progress in this regard as well as indicating when it expects to achieve this objective.
e. The Committee recommends that the CCB put measures in place to retain personnel as the loss of 10 staff members over the last two years is not conducive for productivity and its sustainability.

f. The Committee recommends that the explanation for the missed target on the payment of invoices within 30 days should be addressed as it is unacceptable that the Finance Section did not have all controls in place to pay invoices on time.

4.
4.

STRATEGIC OVERVIEW: HIGHLIGHTS AND CHALLENGES 4.1 Strategic Outcome oriented goals The 2020/21 Annual Report of the CCB referred to its Strategic Outcome oriented goals as: • To ensure effective administrative management in terms of corporate governance and professional competent corporate image.

• To develop the museum and interpretative components of the Castle and its related themes through continuous research and development.
• To ensure promotion of the Castle as a must-see and vibrant tourist destination accessible to all the citizens of South Africa and the world.

• To ensure the accessibility of the Castle as an attractive and user-friendly centre of cultural significance by all sectors of the community.
4.2 Highlights The Chairperson and Chief Executive Officer of the CCB referred to some of the following: • The President and Minister visited the Castle in February for the S.S. Mendi commemoration and Armed Forces Day 2021.

• A clean audit opinion from the AGSA.

• CCB managed to self-generate R1 026 073.


• Except for four targets, the CCB met or exceeded all the corporate governance, heritage maintenance, tourism, and public access targets 288 • Participation on national heritage platforms with participation and publication on the South African Museum Association conferences and publications.

• The DOD-funded maintenance and gardening team transformed the aesthetics of the Castle staving off negative attention from mostly local polemicists.
• Media coverage on the Castle and CCB was favourable and reached a worldwide audience of 554.6 million people.

The CCB did well to achieve a clean audit opinion after it received unqualified audit outcomes for the previous two financial years.

Given the impact of the Covid 19 pandemic, it is also encouraging that the CCB managed to self-generate R 1 026 073.
4.3 Challenges Challenges faced during 2020/21included the following: • Dealing with the challenges and opportunities a post-COVID-19 world offers all of us in particular to support the objectives of Project Koba-Tlala; • Formalising the legal agreement between the Executive Authority and the Board; • Seriously addressing the going concern and sustainability challenges once and for all; • Pursuing the review of and possible amendments to the Castle Management Act; and • Tackling the safety and security risks at the main entrance and around the Castle.
• Securing the perimeter fence has become imperative if the CCB want to position itself for UNESCO World Heritage status.

It was noted that it was not apparent what exactly was hindering the formalisation of the legal agreement between the Executive Authority and the Board and this issue was to be followed up.

Although the CCB is reliant on the DOD to process the amendment of the Castle Management Act, it was still concerning that for the umpteenth time the CCB reports no progress in this regard.
Similarly, it appears that little progress has been made to effectively deal with the safety and security concerns of staff and visitors at the entrance and around the Castle.

4.4 Focus during the new Financial Year: Challenges and Opportunities in 2020/21: Similar to the previous financial year’s annual report, the CCB reported the following a.
Dealing with the challenges and opportunities a post-COVID-19 world; b. Formalising the legal agreement between the Executive Authority and the Board; c. Seriously addressing the going concern and sustainability challenges once and for all; d. Pursuing the review of and possible amendments to the Castle Management Act; e. Tackling the safety and security risks at the main entrance and around the Castle; f. Pursuing the Castle’s UNESCO World Heritage Site listing; g. Roll-out of the CCB’s Responsible Commercialisation strategy to drive sustainability; and h. Maintain and strengthening institutional, corporate, and administrative management processes at the CCB.
289 5.

OVERVIEW AND ASSESSMENT OF FINANCIAL PERFORMANCE 5.1 Financial Performance for the 2020/21 Financial Year The over-expenditure for the CCB for the FY2020/21 was R658 000 versus underspending of R3m in FY 2019/20.
The former is mainly due to the over-expenditure of R696 000 in the Administration Programme and R82 000 in the Conservation Programme, while no money was allocated nor spend in the Tourism Promotion Programme and only R30 000 of the R150 000 allocation for the Public Access Programme was utilised.
2018/19 2019/20 2020/21 R’000 (R thousand) Budget Actual Budget Actual Expenditure Budget Actual Expenditure (Over)/Under Expenditure Administration 7 061 6534 8 031 5 299 Conservation Tourism Promotion Public Access 525 60 204 230 3 294 662 15 250 428 9 109 Total 7 850 7 061 8 958 5 845 4 711 304 0 0 0 150 5 165 5 407 386 0 0 0 30 5 823 Table 1: Budget for FY2018/19 to FY2020/21` Expenditure (696) (82) 0 0 0 120 (658) The CCB has utilised R3 million of the R4.9 million allocated from the Department of Defence.
This has significantly improved the income for the CCB, to such an extent that it could post over-expenditure of R658 000 for the past financial year.

Similar to the FY 2018/19 and 2019/20 comments, the CCB states that “Sales income is in line with our estimates for the year.
However, the provision made to compensate for the access to our historic surplus funds, skews this estimate thus painting a picture of under-performance.” 2018/19 2019/20 2020/21 Source of revenue Estimate Amount Estimate Amount (Over)/under Estimate Amount (Over)/under collected collected collection collected collection Sales 5 000 4 383 Rental income 2 220 1 322 Other income Interest income 575 55 3 243 14 5 870 2 456 622 10 3 921 1 496 394 0 Grant TOTAL R’000 (R thousand) 1 949 1 100 475 625 960 228 10 1 056 255,4 800,6 9 0 555,2 (546,2) 34,4 (34,4) 3 000 (4 900) 4 900 (1 900) 7 850 9 062 8 958 5 811 3 147 5 165 6 220 (1 055) Table 2: Revenue FY 2018/19 - 2020/21 290 5.2 Financial statements 5.2.1 Irregular expenditure The CCB’s Annual Report states the following “ “Management and the Board can be commended to ensure that there was no irregular or unauthorized expenditure of a problematic kind and no fruitless and wasteful expenditure.
Supply chain management policies and prescripts have been strictly observed, and actual expenditure has been closely monitored.

The items disclosed in the notes to the financial statements as irregular or unauthorised relate to trivial deviations regarding specific contracts and contract extensions.

At the same time, the depreciation charge for I.T.


and conference equipment had not been included in the entity's pre-approved expenditure budget.” The amount stated as Irregular Expenditure for 2020/2021 is R939 746, with R749 343 listed as current and R190 403 from prior period.
Although it explains the Irregular expenditure further in the Annual Report on p.94, the fact remains this is for the second year running that such Irregular Expenditure has been incurred: • The R 657 968 of the current year’s irregular expenditure is due to the CCB overspending on its adjustments budget.

Non-cash items such as depreciation, bad debts written off and an increase in leave pay are the contributing items to the over-expenditure of the final budget.
This is due to a very challenging trading environment for the CCB.

The going concern of the CCB has been affirmed through a regular grant from the DoD.

This will ease the financial pressures on the CCB and lead to better budgeting.

• The entity extended contracts without informing the National Treasury where the value of extended contracts exceeded 15% of the initial contract value and the irregular expenditure incurred amounted to R 51 009 (2019/20: R 23 500).
Although its states that it asserts that in extending these contracts there was value for money, no losses were incurred and the process was free of fraudulent, corrupt or criminal conduct, the PCODMV should request more information in this regard from both the CCB and the A-G. • For contracts entered into that did not meet the minimum requirements stated in the National Treasury's General Conditions of Contract, the irregular expenditure amounted to R 30 643 (2019/20: R 174 675).
The above should be considered against the background that no Irregular expenditure has been listed for the FY 2018/19.

Whether an amount of R937 746 can be denoted as trivial in a total budget of R 5 175 000, remains questionable.

As stated before by the PCODMV, the CCB is a small entity with a small budget and it should not have such major governance challenges.
5.2.2 Unauthorised Expenditure and Fruitless and Wasteful Expenditure The Annual Report states that the Board is satisfied that no fruitless and wasteful expenditure was incurred during the year under review, nor in the previous financial year.

This is for the fourth year running, that no unauthorised expenditure nor Fruitless and Wasteful Expenditure were incurred.
5.3 Findings of the Auditor-General of South Africa (AGSA) The CCB received a clean audit for the FY2020/21, which means that they received a financially unqualified audit opinion with no material findings on compliance and performance reporting.

This is an improvement on the previous year’s unqualified audit opinion.
291 5.3.1 Going Concern The CCB states that one of the focus areas for the next financial year is “Seriously addressing the going concern and sustainability challenges once and for all.” The Financial statements further point to the following “Taking all these factors into account the CCB has access to financial resources to allow it to continue its operations into the foreseeable future.
Thus, the annual financial statements have been prepared on the going concern basis.” The Auditor-General has also raised concerns about the ‘going concern status’ when it stated that “Material uncertainty relating to going concern” as and where it dealt with subsequent events and specifically the possible effects of the future implications of Covid-19 on the entity’s future prospects, performance and cash flows.
It however appears that the Going concern challenges have been put to rest, as it is reported that “the DoD will make annual grants to the CCB from the 2021/22 financial period.
This will ensure that the CCB is able to continue as a going concern for the foreseeable future.” The Going Concern challenges should be viewed against the background of the Covid 19 pandemic, and the halt to tourism etc, but the Committee may want to clarify how well the Revenue Optimisation Strategy is performing, as well as whether to more visitors and business for the CCB.
The repeated acknowledgement that its Going status will be reliant on the assistance of the DOD confirms the contention that the CCB has challenges with this issue, and that without such assistance the CCB will be hard pushed to remain a going concern.
increased media exposure actually translate 5.3.2 Usefulness and reliability of the reported performance information The AGSA evaluated the usefulness and reliability of the reported performance information in Programme 2: maintenance and conservation at the CGH and concluded that it did not identify any material findings on the usefulness and reliability of the reported performance information for this programme.

6.
OVERVIEW AND ASSESSMENT OF PROGRAMME PERFORMANCE 6.1 Non-financial performance While the Annual Report 2020/21 indicates that four annual targets were not achieved, the tables in pages 22 to 36 list three targets that have not been achieved, namely: • Total number of visitors per annum had a target of 45 000 while the achievement was 14 522 and the reason offered was that “The tourism industry took a massive knock during Covid-19 restrictions.” • Number of commercial events hosted annually at the CGH had a target of 15 while the achievement was 6 with the reason provided that “Besides the optimistic state overstatement of this target, no one could have predicted the impact of the pandemic on the Events Industry.
• Number of student leaderships offered per annum with a target of 8 while 4 was achieved with the reason being that “After a directive from the Authorities, Cape University withdrew its interns from the programme” Similar as the Annual Report of FY2019/20, the Annual Report FY2020/21 indicates that 19 of the 21 key performance indicators were achieved.

The 90.5% success rate was thus met with overspending of R658 000 of the allocated budget of R5 165 000.
This compared with the previous year’s 90.5% success rate with spending of 65.24% of the planned budget.

6.2 Programme 1: Administration and Good Corporate Governance For the financial year under review, all seven APP targets were met against spending of 115% (overspending).

In the previous financial year, it had a budget of R5 299 000 and a spending of 87.5% while seven of the eight targets 292 were met.
This programme deals with areas of administration, corporate governance, financial management, human resource management and stakeholder communication.
FY 2020/21 FY2019/20 FY2018/19 Programme 1: Targets Targets achieved Targets not achieved Success rate Programme budget spent (%) 7 7 0 100% 115% 8 7/8 1/8 87.5% 66% 4 4 0/4 100% 92.3%) Table 3: Programme 1- Targets and achievements The CCB performed well in achieving all of the seven annual targets of Programme 1 for the financial year under review, although this was done by overspending on the programme.
It is concerning that one of the targets included in the previous financial year, was omitted for the financial year under review, namely the payment of invoices within 30 days.

Given the importance of such an annual target, the CCB should be encouraged to re-instate this annual target.
It is important that invoices are paid on time, especially for SMME’s given their heavy reliance on on-time payments to ensure the continued existence of their businesses, especially in these times of the Covid-19 pandemic.

6.3 Programme 2: Preservation, Interpretation and Showcasing of the History of the Castle All four targets of Programme 2 have been achieved against a spending of 113% of the budget, with a similar achievement of 100% of the targets in the previous year.
The CCB did well on this Programme, especially as it relates to the preservation and showing of the Castle.

Programme 2: Targets Targets achieved Targets not achieved Success rate Programme budget spent (%) FY 2020/21 FY2019/20 FY2018/19 4 4 0 100% 113% 3 3 0 100% 4 3 1 75% 64.5% 43.8% Table 4: Programme 2- Targets and achievements 6.4 Programme 3: Maximising the Tourist Potential Programme 3 saw a performance where four of the six targets were met in the financial year under review.
The two missed target relate visitors per annum and commercial events, both issues that suffered because of the Covid-19 pandemic.

This brought the success rate down from the two previous years’ 83.33% to 67%.
FY 2020/21 FY2019/20 FY2018/19 Programme 3: Targets Targets achieved Targets not achieved Success rate Programme budget spent (%) 6 4 2 67% 0/0 6 5 1 83.33% 60% 6 5 1 83.33% 5% Table 5: Programme 3 - Targets and achievements 293 6.5 Programme 4: Increased Public Profile and Positive Perception Across all Sectors of the Community The success rate of this programme dropped from the two previous years’ 100% to 75% because one of the targets was not met, namely the number of learnerships.
This against the background that only R30 000 of the allocated R150 000 of this programme was spent.

FY 2020/21 FY2019/20 FY2018/19 Programme 4: Targets Targets achieved Targets not achieved Success rate Programme budget spent (%) 4 3 1 75% 20% 4 4 0 100% 43.6% 4 4 0 100% 144% Table 6: Programme 4- Targets and achievements 7.
GOVERNANCE The Annual Report refers to various issues under this section, inter alia its four engagements with the Portfolio Committee, that it operates as a Schedule 3A Public Entity, and states that a Risk Register has been developed to determine the effectiveness of its risk management strategy and to identify new and emerging risks.
7.1 Risk Management The Annual Report indicates that the CCB has developed a Risk Register, which forms the basis for regular risk assessments to determine the effectiveness of its risk management strategy and to identify new and emerging risks.

While the Annual Report for FY2017/18 listed the various Strategic Risks, this was not done for the subsequent three years, including 2020/21.

This is contrast of how this is being done by the Department of Defence and the Department of the Military Veterans.
These risks included the shortcomings in the Castle Control Board’s founding Act; the safety and security concerns of staff and visitors to the Castle; and finalising the space- allocation, utilisation and sustainability of the Castle Control Board.

In the past the Annual Report listed space allocation - which deals with how and by whom the various facilities at the CGH are being managed - as a challenge but the last two annual reports do not refer to this issue.
Given that the entity has pointed out that this relates to their income generation capacity and its drive towards sustainability, this risk needs to be highlighted.

7.2 Fraud and corruption The CCB has a fully-fledged Fraud Prevention Policy that also addresses criminality.

It aims to make losses due to fraud and corruption intolerable and will institute training covering these aspects.
It further states that in the case of significant corporate functions at the Castle, that they source additional private security that is paid for by the client.

The upgrading of the CCTV camera system will further enhance their capability to manage safety and security.

294 8.

HUMAN RESOURCES The CCB’s Human Resources issue need to be viewed against the background that “Traditionally the Human Resources component of the CCB has been both its Achilles heel and strength.
On the one hand, its historical reliance on DOD-remunerated staff assigned to the Castle has led to significant savings …but on the other hand, it attracted the ire of N.T.

and the AGSA and delayed any decisiveness as to the ultimate civilian management structure of the CCB.” Although it states that now successfully resolved this matter, it has been put on the backfoot with the departure of three managers and two other staff members.
8.1 Performance bonus reversal The Annual Report indicates that no performance rewards have been paid to its personnel in the FY2020/21.

It however refers to a “Performance bonus reversal to the amount of R386 553 for the FY2019/20.” 9.

COMMITTEE OBSERVATIONS: CASTLE CONTROL BOARD The Portfolio Committee made the following Observations on the 2020/21 Annual Report of the CCB: a.
The Committee commended the CCB on achieving a clean audit outcome from the AGSA after it has regressed over the previous two financial years.

b.

The CCB was commended on its ability to self-generate R1.026 million during the financial year under review despite the devastating impact of Covid-19 on the tourism industry.
c. It was noted that the CCB has previously stated its intention to deal with its Going Concern challenges and that the AGSA stated that due to the financial assistance of the DOD, the entity could prepare its financial statements on the Going Concern basis.

d. Questions were raised around the possibility of online exhibitions by the CCB, especially given the Covid- 19 restrictions and the ability of online exhibitions to reach rural areas and especially rural schools.
e. It was observed that the CCB denoted as trivial an amount of R937 746 in Irregular Expenditure in a total budget of R 5 175 000. f. The CCB’s attempts to achieve a UNESCO World Heritage Site listing was welcomed by the Committee as it would not only be beneficial to the CCB, but also give assurances that the site adheres to international standards.

10.
10.

COMMITTEE RECOMMENDATIONS: CASTLE CONTROL BOARD The Portfolio Committee, after considering the 2020/21 Annual Report of the CCB, makes the following recommendations: a.

The Committee commended the CCB on its clean audit opinion and reiterated its stance that it expects such a small entity to perform well during its auditing processes.

b.
The CCB was encouraged to further enhance its self-generating capability to ensure that it is less reliant on the Department of Defence, and that it should prioritise its much vaunted Revenue Generating Strategy to assist to increase the CCB’s revenue c. Noting the Going Concern challenges have been exacerbated by the pandemic, the Committee recommends that the CCB should, inter alia, explore the full utilisation of all facilities at the Castle to enhance its sustainability and revenue generating abilities.
Progress in this regard should be reported at the next meeting with the Committee.

d. The Committee welcomed the CCB’s initiative to utilise an e-brochure but was encouraged to develop online exhibitions to increase its coverage, especially to rural schools, while noting that such a project would be funding-dependent.
295 e. The Committee raised its serious concern that an amount of R937 746 could be incurred as Irregular Expenditure and viewed as trivial and reiterated its stance that such a small entity with a small budget, should not incur such Irregular Expenditure.

f. The Committee encouraged the CCB to enhance its efforts to obtain a UNESCO World Heritage Site listing and wants it to brief the Committee on progress in this regard as well as indicating when it expects to achieve this objective.
Report to be considered 296 12.

Report of the Standing Committee on Finance on the Tax Laws Amendment Bill [B22 - 2021] (National Assembly- section 77), dated 24 November 2021 The Standing Committee on Finance, having considered the Tax Laws Amendment Bill [B22- 2021] (National Assembly- section 77), referred to it, and classified by the JTM as a Money Bill, reports the Bill with amendments [B22A – 2021] as follows: 1.

INTRODUCTION AND BACKGROUND 1.1.


The Tax Laws Amendment Bill (TLAB) was tabled in Parliament by the Minister of Finance on 11 November 2021, together with the 2021 Medium-Term Budget Policy Statement.

The TLAB is a section 77 (of the Constitution) Bill dealing with national taxes, levies, duties and surcharges.

1.2.
1.2.

As is usually the case, the tabling of this Bill was preceded by the publication of the draft version of the Bill (Draft TLAB) on 28 July 2021, together with the Draft Tax Administration Laws Amendment Bill (Draft TALAB), and the second publication of the 2021 Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Draft Rates Bill).

1.3.

The Draft TLAB contained some tax proposals made in Chapter 4 and Annexure C of the 2021 Budget Review.
A separate second Batch of the Draft Tax Bills were published on 12 August 2021 containing emergency tax measures in response to the continuing 1 297 COVID-19 pandemic and the recent July unrests.

These latter measures were over and above the tax proposals that were announced with 2021 Budget on 24 February 2021.

1.4.

The changes relating to emergency tax measures contained in the second batch of the 2021 Draft TLAB are incorporated into the Draft TLAB.

2.

PUBLIC PARTICIPATION 2.1.


The Committee was briefed by National Treasury and SARS on the Draft Bills on 17 August 2021 and held public hearings on 31 August 2021.

2.2.

On 10 November 2021, National Treasury and SARS presented their detailed responses to the Draft Bills to the Committee, addressing all the comments made during the public hearings and Committee briefings and deliberations.

2.3.
2.3.

The National Treasury and SARS reported that they received 76 written submissions from the public and responded to these comments during their own consultation processes.

They also hosted workshops which ran for three days on 07, 08 and 09 September 2021.

2.4.
The Committee received written and oral submissions from the following organisations and/or individuals: South Africa Tobacco Transformation Alliance (SATTA), British American Tobacco South Africa (BATSA), Limpopo Tobacco Processors (LPT), Phillip Morris (PM), South African Liquor Brandowners Association (SALBA), Beer Association of South Africa (BASA), AgriSA, Agbiz, Dr. Seun Muller, Banking Association of South Africa, South African Institute of Taxation (SAIT), South African Institute of Chartered Accountants (SAICA), PwC, Tax Consult.
It also received only written submissions from the Johannesburg Stock Exchange (JSE) and the Black Tobacco Farmers Association (BTFA).

2 298 3.

OVERVIEW OF THE KEY TAX PROPOSALS IN THE TLAB 3.1.
The TLAB amends the provisions and, in some instances, definitions, Schedules, Preambles, long titles and/or effective dates, and makes new provisions to some of the following statutes: the Transfer Duty Act, 1949; the Estate Duty Act, 1955; the Income Tax Act, 1962; the Customs and Excise Act, 1964; the Value-Added Tax Act, 1991; the Securities Transfer Tax Act, 2007; the Employment Tax Incentive Act, 2013; the Taxation Laws Amendment Act, 2013; the Carbon Tax Act,2019; the Disaster Management Tax Relief Act, 2020; and the Taxation Laws Amendment Act, 2020.
3.2.

Under the category of employment individuals and savings taxes, the proposals specifically dealt with the following amendments: 3.2.1.

Reviewing the nature of long-service awards for fringe benefit purposes (Clauses 4(d), 42 & 43 of the Draft TLAB: Paragraph (c ) of the definition of gross income,paragraph5(2)(b) & new paragraphs 6(4)(d) and 10(2)( e) of the Seventh Schedule to the Income Tax Act); 3.2.2.
Curbing abuse in the Employment Tax Incentive (Clauses 58 & 59 of the Draft TLAB: Definition of “employee” and section 6 of the Employment Tax Incentive Act) 3.2.3.

Clarifying the timing disposal rules in respect of an asset acquired from a deceased estate (Clauses 4 ( e) and 22 of the Draft TLAB: Definition of “liquidation and distribution account” in section 1 and section 25 of the Income Tax Act ) 3 299 3.2.4.
Tax treatment of a cession of a right to receive asset (Clause 33 of the Draft TLAB: New section 57B of the Income Tax Act) 3.2.5.

Strengthening anti-avoidance rules in respect of loan transfers between trusts (Clause 5 of the Draft TLAB: Section 7C of the Income Tax Act) 3.2.6.

Applying tax on a retirement interest when an individual ceases to be a tax resident (Clauses 11 & 12 of the Draft TLAB: Section 9H & new section 9HC of the Income Tax Act) 3.2.7.
Allowing members to use retirement interest to acquire annuities on retirement (Clause 4 (f),(g), (h), (i), & (j) of the Draft TLAB: Definitions of retirement annuity fund, pension fund, pension preservation fund, provident fund, provident preservation fund of the Income Tax Act) 3.2.8.
Transfers between retirement funds by members who are 55 years or older (Clause 4 (g), (k), of the Draft TLAB: Definitions of gross income, pension preservation fund & provident preservation fund of the Income Tax Act) 3.2.9.

Clarifying the calculation of the fringe benefit in relation to employer contributions to a retirement fund(Clause 44 of the Draft TLAB: Paragraph 12D of the Seventh Schedule to the Income Tax Act 3.3.
Under the category of general business tax, the proposals specifically dealt with the following issues/amendments: 3.3.1.

Strengthening the rules dealing with limitation of interest deductions in respect of debts owed to certain persons not subject to tax (Clause 20 of the Draft TLAB: Section 23M of the Income Tax Act); 4 300 3.3.2.

Restricting the set-off of the balance of assessed losses in determining taxable income (Clause 19 of the Draft TLAB: Section 20 of the Income Tax Act); 3.3.3.
Clarifying the definition of “Contributed Tax Capital” (Clause 4 (c) of the Draft TLAB: Section 1 of the Income Tax Act); 3.3.4.

Limiting potential for double taxation under the hybrid debt anti-avoidance rules (Clauses 8, 9, 32 of the Draft TLAB: Sections 8F, 8FA and 50A of the Income Tax Act); 3.3.5.

Clarifying the meaning of “interest” under the debt relief rules (Clauses 18, 45 of the Draft TLAB: Section 19(8)(f) and paragraph 12A(6)(g) of the Eighth Schedule to the Income Tax Act); 3.3.6.
Refining the interaction between anti-value shifting rules and corporate re- organisation rules (Clause 25 of the Draft TLAB: Section 40CA of the Income Tax Act); 3.3.7.

Clarifying the rules that trigger additional consideration in asset for share transactions when a debt is assumed by a company (Clause 26 of the Draft TLAB: Section 42(8) of the Income Tax Act); 3.3.8.
Clarifying the rules that trigger additional consideration in asset for share transactions when a debt is assumed by a company (Clause 26 of the Draft TLAB: Section 42(8) of the Income Tax Act); 3.3.9.

Clarifying the early disposal anti-avoidance rules in intra group transactions (Clause 27 of the Draft TLAB: Section 45(5) of the Income Tax Act); 5 301 3.3.10.
Extending the reversal of the nil base cost rules to apply on the sixth anniversary of an intra-group transaction (Clause 27 of the Draft TLAB: Section 45(3B) of the Income Tax Act); 3.3.11.

Clarifying the interaction between early disposal anti-avoidance rules and the nil-base cost anti avoidance rules (Clause 27 of the Draft TLAB: Section 45(3B) of the Income Tax Act) 3.3.12.
Refining the provisions applicable to unbundling transactions (Clauses 28 & 29 of the Draft TLAB: Sections 46 & 46A of the Income Tax Act); and 3.3.13.

Clarifying rehypothecation of collateral within collateral arrangement provisions (Clause 56 of the Draft TLAB: Section 1 of the Securities Transfer Tax Act) 3.4.

Under the category of taxation of financial institutions and products, the proposals dealt with the following issues/amendments: 3.4.1.
Clarifying the transfer of liabilities in respect of insurance business between short term insurers (Clause 23 of the Draft TLAB: Section 28 of the Income Tax Act); and 3.4.2.

Refining the deduction formula for taxable long term insurer policyhold funds (Clause 24 of the Draft TLAB: Section 29A of the Income Tax Act).

3.5.

Under the category of tax incentives, the proposals dealt with the following issues/ amendments: 3.5.1.
Extension of the Urban Development Zone (UDZ) tax incentive (Clause17 of the Draft TLAB: Section 13 quat of the Income Tax Act); 6 302 3.5.2.

Extension of the learnership tax incentive sunset date (Clauses 15 of the Draft TLAB: Sections 12H of the Income Tax Act); and 3.5.3.

Refining the time frames of compliance requirements of Industrial Policy Projects (IPP) tax incentive (Clause 16 of the Draft TLAB: Section 12I of the Income Tax Act).

3.6.
3.6.

Under the category of international tax, the proposals dealt with the following issues/ amendments: 3.6.1.

Clarifying the controlled foreign company anti-diversionary rules (Clauses 10 of the Draft TLAB: Sections 9D (9A) of the Income Tax Act); 3.6.2.

Clarifying the interaction between provisions dealing with a foreign company ceasing to be a cfc and the participation exemption (Clauses 11 of the Draft TLAB: Sections 9H(5) of the Income Tax Act); 3.6.3.
Clarifying the rules dealing with withholding tax exemption declaration (Clauses 31, 34 & 35 of the Draft TLAB: Sections 49E(2)(b), 64G(2)(a) and 64H(2)(a) of the Income Tax Act); 3.7.

Under value added tax, the proposals dealt with the following issues/ amendments: 3.7.1.

Zero rating of super fine maize meal (Clause 55 of the Draft TLAB: Schedule 2; Part B of the VAT Act); 3.7.2.
VAT treatment of temporary letting of residential immovable property (Clauses 51, 52 & 54 of the Draft TLAB: Sections 9(6), 10(29) and 18D of the VAT Act); 3.7.3.

Reviewing the section 72 decision with regard to the VAT treatment of telecommunication services (Clause 63 of the Draft TLAB: Section 11(2)(y) of the VAT Act); 7 303 3.8.

On carbon tax, the proposals dealt with: 3.8.1.

Clarifying renewable energy premium beneficiaries (Clause 63 of the draft TLAB: Section 6(2)(c) of the Carbon Tax Act); 3.8.2.
Clarifying the definition and scope of carbon sequestration- Limitation on biological sequestration to forest plantations (Clause 63 of the draft TLAB: Sections 6(3) and 6(4) of the Carbon Tax Act); 3.8.3.

Clarifying the definition and scope of carbon sequestration- Sequestration deduction for fuel combustion emissions (Clause 63 of the draft TLAB: Sections 6(3) and 6(4) of the Carbon Tax Act); 3.8.4.
Clarifying the carbon budget allowance (Clause 64 of the draft TLAB: Section12 of the Carbon Tax Act); and 3.8.5.

Aligning schedule 2 emissions activities and thresholds with the greenhouse gas emission reporting regulations of the Department of Forestry and Fisheries (Clause 65 of the draft TLAB: Schedule 2 of the Carbon Tax Act).

4.

KEY ISSUES RAISED IN THE PUBLIC HEARINGS 4.1.


The issues raised by the public during the public hearings on the Draft TLAB covered the following areas: employment, individuals and savings taxes; general business tax; international tax; value added tax and; carbon tax.

4.2.

The key issue raised on the Draft TLAB on employment, individual and savings taxes during the public hearings were; 8 304 4.2.1.
Applying tax on withdrawals of retirement interest when an individual ceases to be a tax resident (Clauses 11 of the Draft TLAB: New section 9HC of the Income Tax Act); 4.2.2.

Curbing abuse in the Employment Tax Incentive (Clauses 58 & 59 of the Draft TLAB: Definition of “employee” and section 6 of the ETI Act); and 4.2.3.

Strengthening anti-avoidance rules in respect of loan transfers between trusts (Clause 5 of the Draft TLAB: Section 7C of the Income Tax Act).

4.3.
4.3.

On Business Tax, the main issues raised were on: 4.3.1.

Strengthening the rules dealing with limitation of interest deduction in respect of debts owed to certain persons not subject to tax (Clause 20 of the Draft TLAB: Section 23M of the Income Tax Act); 4.3.2.

Restricting the set-off of the balance of assessed losses in determining taxable income (Clause 19 of the Draft TLAB: Section 20 of the Income Tax Act); 4.3.3.
Clarifying rehypothecation of collateral within collateral lending arrangements (Clause 56 of the Draft TLAB: Section 1 of the Securities Transfer Tax Act); 4.3.4.

Clarifying the definition of “contributed tax capital” (Clause 4(1)(c) of the Draft TLAB: Section 1 of the Income Tax Act); and 4.3.5.

Refining the interaction between anti-value shifting rules and corporate reorganization rules (Clause 25 of the Draft TLAB: Section 40CA of the Income Tax Act) 4.4.
On international tax, the main issue raised was on: 4.4.1.

Clarifying the controlled foreign company (CFC) anti-diversionary rules (Clause 10 of the Draft TLAB: Section 9D(9A) of the Income Tax Act); 9 305 4.5.

On value added tax, the issue was on: 4.5.1.

VAT treatment of temporary letting of residential immovable property (Clause 54 of the Draft TLAB: New section 18D of the VAT Act).

4.6.

And on carbon tax, the main issues were on 4.6.1.


Clarifying renewable energy premium beneficiaries (Clause 63 of the Draft TLAB: Section 6(2)(c) of the Carbon Tax Act); 4.6.2.

Clarifying the definition and scope of carbon sequestration- Limitation on biological sequestration to forest plantations (Clause 63 of the Draft TLAB: Sections 6(3) & 6(4) of the Carbon Tax Act); and 4.6.3.
Aligning schedule 2 emissions activities and thresholds with the greenhouse gas emission reporting regulations of the DFFE (Clause 65 of the Draft TLAB: Schedule 2 of the Carbon Tax Act).

4.7.

Following consultations, the workshops held by NT and SARS with stakeholders and public hearings in Parliament, some initial proposals in the Draft TLAB were modified or changed in the Bill that was tabled with the MTBPS on 11 November 2021.
These changes are detailed in the draft response document of NT and SARS presented to the Committee on 10 November 2021.

Some key issues raised on applying tax on withdrawals of retirement interest when an individual ceases to be a tax resident (Clauses 11 of the Draft TLAB: New section 9HC of the Income Tax Act): 10 306 4.8.
The background to this amendment is that when an individual ceases to be a South African tax resident, before retirement, and becomes a tax resident of another country, that individual’s retirement fund interest may be subject to tax in that other country, due to the application of the tax treaty between South Africa and that other country.
The provisions of the tax treaty between South Africa and the other country regards the individual to be a tax resident in that country, thereby in some instances resulting in South Africa forfeiting its taxing rights, while the taxpayer benefited from tax deductions in respect of contributions to the retirement fund.
The proposal in the Draft TLAB sought to address this base erosion by ensuring that when an individual ceases to be a South African tax resident, the retirement fund interest will form part of the assets that are subject to retirement withdrawal tax.

4.9.
4.9.

Stakeholders strongly raised issue with this new provision, submitting that it seemed to bypass the tax treaties between South Africa and other countries through domestic legislation and could potentially result in double taxation for members of retirement funds.

They submitted that should the South African government wish to address the concerns of base erosion due to emigration, the relevant Double Tax Agreements of concern should be renegotiated with the concerned countries accordingly.
They submitted further that the proposed insertion of the new section 9HC could lead to involuntary withdrawals of retirement interests upon emigration as members will be required to withdraw from their retirement funds in South Africa, even if they did not envisage doing so and rather preferred to retain their retirement savings in South Africa.

11 307 4.10.

In its response, National Treasury conceded that the proposed amendments could result in “treaty override”.
As a result of this, the National Treasury decided to withdraw this proposal and it is not included on the TLAB tabled by the Minister of Finance on 11 November 2021.

Some key issues on curbing abuse in the Employment Tax Incentive (Clauses 58 & 59 of the Draft TLAB: Definition of “employee” and section 6 of the ETI Act) 4.11.
The Employment Tax Incentive (ETI) programme was introduced in January 2014 to provide for employment of young workers and make provision for employers to reduce their pay-as-you-earn (PAYE) tax payments to the South African Revenue Service (SARS) for the first two years in which they employ qualifying employees with a monthly remuneration of less that R6 500, subject to certain limitations.

4.12.
4.12.

The National Treasury stated that it had come to Government’s attention that some taxpayers have devised certain schemes to claim the incentive in respect of individuals who do not work for them, but are rather engaged in training programmes using training institutions, with no employment characteristics (therefore failing to meet the definition of ‘employee’ as defined in section 1(1) of the ETI Act).

4.13.
4.13.

In order to counter this abuse, amendments were proposed in the 2021 Draft TLAB in order to clarify the concept of ‘work’.

A requirement was added that work must be performed in terms of an employment contract and the employee must be documented in the employer’s records as envisaged in the record keeping provisions 12 308 contained in section31 of the Basic Conditions of Employment Act.
In view of the fact that the proposed changes to the legislation are aimed at curbing abusive schemes, it was also proposed that these amendments should apply retrospectively and be deemed to have come into operation on 1 March 2021.

4.14.

Stakeholders made various comments that sought to clarify the proposed changes and their effective date (which will now be 1 March 2022), which the National Treasury accepted and effected in the tabled TLAB.

4.15.
4.15.

The Committee believes that National Treasury should closely consider criticisms that the ETI is not achieving the goals for which the incentive was introduced for.

There were criticisms from some stakeholders that the ETI is being paid for workers that companies would have employed anyway, and might therefore not be creating any new jobs.
The effect of this is that companies claim this incentive without contributing to the goals of the scheme and the state loses tax revenues without any correspondent increase in employment.

The Committee will request the National Treasury to provide it with a report on the effectiveness of the ETI since it was introduced.
Some key issues raised at the public hearings on the strengthening anti-avoidance rules in respect of loan transfers between trusts (Clause 5 of the Draft TLAB: Section 7C of the Income Tax Act).

4.16.

Anti-avoidance measures to curb the tax-free transfer of wealth to trusts using low or interest-free loans in order to avoid estate duty and donations tax on the assets subsequent growth in value were introduced in 2016.
In 2017 and in 2020, further 13 309 changes were made to counter new attempts to undermine these measures.

Government is concerned about further tax avoidance schemes between trusts, where the founder of one trust holding the original asset is related to one or more beneficiaries of the other trust to which the loan asset is transferred.

4.17.
4.17.

To address this, it was proposed that the anti-avoidance rules should also apply in respect of any loan, advance or credit that a trust, directly or indirectly, provides to another trust whose beneficiaries or the founder are connected persons.

It was also proposed that the changes should apply retrospectively and be deemed to have come into operation on the date of the publication of the 2021 Draft TLAB on 28 July 2021.
Some key issues raised at the public hearings on strengthening the rules dealing with limitation of interest deduction in respect of debts owed to certain persons not subject to tax (Clause 20 of the Draft TLAB: Section 23M of the Income Tax Act); 4.18.
The background to this amendment is that in 2013, rules that limit interest deductions in respect of debts owed to persons not subject to tax were introduced in the Income Tax Act (apply in respect of amounts of interest incurred on or after 1 January 2015).

The main aim of these rules is to limit excessive interest deductions in respect of debts owed to persons not subject to tax in South Africa, if the debtor and the creditor are in a controlling relationship.

4.19.
4.19.

On 26 February 2020 – the Government published a discussion document titled “Reviewing the Tax Treatment of Excessive Debt Financing, Interest Deductions and 14 310 Other Financial Payments” to conduct a review of the current rules in comparison to the OECD/G20 BEPS Action 4 recommendations.
To strengthen the rules in line with the recommendations, the following proposed changes were included in the 2021 Draft TLAB (as part of a corporate tax package): expanding the meaning of the term “interest” for purposes of these rules; moving to a fixed ratio (30% of earnings) restriction rather than one based on a formula; reducing opportunities to avoid the rules with back-to-back loans; and amending the definition of “adjusted taxable income” as it applies to REITs.

4.20.
4.20.

Stakeholders pleaded that companies’ earnings have been severely affected by COVID-19.

They said that if this proposal is introduced in the years where the impact of the COVID-19 pandemic is felt, interest deductibility will be further impacted by the significantly lower tax Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) in the current and post COVID-19 pandemic years.

The NT accepted this and added that this measure was first proposed before Covid-19 reached South Africa.
Is said that the current rules are an important tool to mitigate the use of excessive debt and interest payments that reduce taxable profits in South Africa.

4.21.

NT stated that government maintained the view that these rules need to be strengthened to protect the corporate tax base, but understands that many businesses may have had to rely on more debt to withstand the pandemic and its associated lockdowns.
As a result of this, NT decided to postpone the implementation of this proposal to provide space for recovery.

While the proposal remains in the tabled TLAB, it will only come into operation on the date on which the rate of tax in respect of the taxable income of a company is first reduced after announcement by the Minister 15 311 of Finance in the Annual National Budget, and will apply in respect of years of assessment commencing on or after that date.
Some issues raised on restricting the set-off of the balance of assessed losses in determining taxable income (Clause 19 of the Draft TLAB: Section 20 of the Income Tax Act); 4.22.

The background to this proposed amendment is that in determining taxable income, taxpayers can set off their balance of assessed losses carried forward from the preceding tax year against their income.
An unutilised balance of assessed losses may be carried forward to future years of assessment to be set off against future income (provided that the non-individual taxpayer’s trade continues without interruption).

Accordingly, taxpayers will only be liable for income tax once they have earned a taxable profit and their assessed loss balance is depleted.

4.23.
4.23.

The purpose of providing for the deductibility of assessed losses for corporate taxpayers is to smooth the tax burden for companies whose primary business is cyclical in nature and not in line with a standard tax year, and for start-up companies that are not profitable in the early years of trading.

4.24.

NT explained that over the past few years, there has been an international trend to restrict the use of assessed losses and reduce the corporate income tax rate.
To improve the country’s competitiveness, reduce the appeal of base erosion and profit shifting, encourage investment and promote economic growth, the Minister of Finance announced (in the 2020 Budget Review) Government’s intention to restructure the corporate income tax system over the medium term by broadening the base and 16 312 reducing the corporate income tax rate in a revenue neutral manner.
In the 2021 Draft TLAB (as part of the corporate tax package), Government proposed broadening the corporate income tax base by restricting the offset of the balance of assessed losses carried forward to 80 per cent of taxable income.

It said that the effect of the proposed restriction is that only companies that would be in a positive taxable income position before setting off the balance of assessed losses would be affected.
While the overall tax liability will not change, a portion of the tax liability will be brought forward.

4.25.

Stakeholders commenting on this proposal said that they understood and appreciated the overall objective of broadening the corporate tax base and lower the tax rate.

However, one of the biggest concerns raised was timing – that the proposal is too harsh given the continuing Covid-19 pandemic and recent unrest in the country.
They said that many businesses (in different sectors, large and small) had suffered losses as a result of the pandemic and associated lockdowns.

Having to use cash to pay tax on 20 per cent of taxable income rather for other immediate needs to stay float will place an additional burden on companies that are trying to recover from these adverse events.
They also stated that many countries had temporarily relaxed their tax loss regimes as part of the relief measures to support businesses in these trying times.

4.26.

NT, in its response, acknowledged that this measure was first proposed before the Covid-19 pandemic hit our shores.

It said that the South African government holds the view that a broad tax base with as few distortions as possible, combined with a lower rate, will be more efficient.
It also acknowledged that businesses were facing difficult times and providing the space for their recovery was important.

To provide some balance, it said that the proposal will remain but only come into operation after 17 313 an announcement by the Minister of Finance in the Annual National Budget.

It also assured that this measure will not be applied retrospectively.

4.27.
4.27.

With regards to comments about the impact of this measure in various specific sectors such as agriculture, and cyclical, start-ups and small businesses, NT stated that as a general stance is that Government is not in favour of providing carve-outs because they provide special treatment to some taxpayers and can lead to complexities.
It submitted that this has the potential to create vested interests for those that benefit – making it difficult to adapt the original policy choice if it becomes apparent that it is not ideally designed or no longer fit for purpose.

It added that this also often means that Government is continually exposed to lobbying from those who do not benefit because they also consider themselves eligible for special treatment.

4.28.
4.28.

NT further stated that although the proposed quantum restriction is relatively generous at 80 per cent and is one of the least punitive given that companies will not forfeit any losses as the balance of assessed losses will be carried forward indefinitely, Government recognises that not all businesses are equally equipped with cash on hand once taxable income turns positive for the first time after a sustained period of accumulated losses.
It said that in order to cater for all sectors, changes were made in the tabled Bill to introduce a de minimis threshold beyond which the proposal takes effect.

It said that to the extent that the balance of assessed losses exceeds 80 per cent of current-year taxable income, companies will be able to set off the higher of R1 million or 80 per cent of taxable income when calculating their tax liability.
18 314 Some issues raised on clarifying rehypothecation of collateral within collateral lending arrangements (Clause 56 of the Draft TLAB: Section 1 of the Securities Transfer Tax Act) 4.29.

The background to this amendment is that the Securities Transfer Tax Act contains tax relief rules that allow for the tax neutral transfer of collateral (listed shares or local and foreign government bonds) between the parties to a collateral arrangement.
At issue was the rehypothecation of collateral, where banks, broker dealers or collateral takers (transferee) intend to use that collateral received for trading or as security for borrowing.

The National Treasury stated that the use of collateral for purposes other than subsequent collateral arrangements was against the policy rationale for the introduction of these provisions and could result in the avoidance of securities transfer tax or capital gains tax.

4.30.
4.30.

The proposals to curb such abuse in the Draft TLAB were aimed at ensuring that the assets transferred as collateral in terms of a collateral arrangement may only be used for such purpose and not for trading or in other financial transactions.
A requirement was also added that the transferee should enter into a contractual arrangement and agree that the assets transferred will either be held by that transferee for the duration of the arrangement or be used for purposes of providing security in respect of an amount owed by that transferee.

The Draft TLAB proposed that this amendment be applied retrospectively and come into operation on the date of the publication of the 2021 Draft TLAB on 28 July 2021.

4.31.
4.31.

Many stakeholders argued against this proposal on the basis that it was unnecessary as existing laws were adequate to ensure that any reuse of collateral 19 315 outside a collateral arrangement would fall within the tax net and therefore not result to any tax avoidance.

Others raised concerns on the retrospective application of the proposed provisions, especially the practicality of the requirement that contractual agreements be entered into between the parties.
In response to the latter, the National Treasury clarified that the proposal will no longer apply retrospectively, but from 1 January 2022, in order to avoid having to amend existing contractual agreements within the parties in this regard.

Due to further engagements between Industry, NT and the Committee, the operation of this clause was further postponed to 01 January 2023 to enable further consultation.
Some issues raised on clarifying the definition of “contributed tax capital” (Clause 4(1)(c) of the Draft TLAB: Section 1 of the Income Tax Act) 4.32.

The background to the proposed amendment is that contributed tax capital (CTC) of any company is a notional and ring-fenced amount derived from contributions made to a company by holders of a class of shares as consideration for the issue of that class of shares by that company.
It is reduced by any capital amount that is subsequently transferred back by the company to one or more shareholders of that class of shares (commonly known as a capital distribution) utilising the notional tax amount so received.
The policy rationale of this provision and the wording of the current provision to the definition of CTC specifically requires that no holder of shares within a particular class of shares may receive CTC in excess of an amount per share 20 316 derived by dividing the total CTC by the number of shares in that class immediately before that distribution.

4.33.
4.33.

NT explained that it had come to Government’s attention that some companies are exploiting the current provisions of CTC by allocating CTC on the basis of an alleged “share premium” contributed by a particular shareholder but not to all shareholders holding shares in the same class of shares.
The 2021 Draft TLAB proposed that changes be made to the definition of CTC to clarify the principle that shareholders within the same class of shares should share proportionally in the allocation of CTC as a result of a distribution.

4.34.

Stakeholders contended that this proposed wording had a much wider impact than intended, especially on the corporate actions of elective share buy-backs (per section 48 of Companies Act) and redeemable preference shares.
They recommended that both elective share buy-backs and redeemable preference shares should be excluded from the ambit of the proposed provision in the TLAB.

NT conceded and agreed to exclude a general repurchase of listed shares by companies listed on the Johannesburg Stock Exchange or any other South African exchange.

The operation of this provision is 1 January 2022 and is no longer retrospective as had been initially proposed.

4.35.
4.35.

On 22 November, the Committee received a further submission from some stakeholders highlighting that the final proposal still did not exempt share buy-backs from the provisions of this proposal, asking the Committee to not pass this provision because it will have a negative impact on the share buy-back transactions.

As a 21 317 compromise, the National Treasurer further postponed the operation of this provision 01 January 2023 to enable it to further consult.
Some issues raised on refining the interaction between anti-value shifting rules and corporate reorganization rules (Clause 25 of the Draft TLAB: Section 40CA of the Income Tax Act) 4.36.

The Income Tax Act contains anti-value shifting rules in sections 24BA and 40CA that curb the use of structures that shift value between taxpayers free of tax.

On the other hand, the corporate reorganisation rules allow for the tax neutral transfer of assets between companies.
NT explained that the interaction between the anti-value shifting rules in sections 24BA and 40CA and the corporate reorganisation rules gives rise to anomalous results as the capital gains triggered under the anti-value shifting rules is only added to the base cost of an asset acquired in exchange for the issue of shares by a company in terms of section 40CA, which is outside of the corporate reorganisation rules.

4.37.
4.37.

Stakeholders commented that the changes proposed are welcomed in so far as it provides for an increase in the relevant base cost in respect of tax actually paid.

They noted that the proposal for the additional base cost only to be deemed to arise immediately prior to a subsequent disposal introduces an additional, and unnecessary, level of complexity and administration.
In particular, they explained, there are concerns around the complexity this will lead to when making determination for deferred tax as it becomes debatable what the base cost is of an asset that was subject to the anti-value shifting rules and has not yet been disposed of outside of 22 318 the corporate reorganisation rules.

They submitted that the additional base cost uplift should be granted upfront immediately after an asset-for-share transaction that is subject to the anti-value shifting rules.

4.38.
4.38.

NT accepted this submission and explained that changes will be made in the 2021 Draft TLAB to ensure that the additional expenditure incurred uplift is granted immediately after an asset-for-share transaction that is subject to the anti-value shifting rules.

It further explained that as a consequential amendment, an additional legislative change will be made to section 41(2) of the Act to ensure that the re-organisation rules are made subject to this immediate base cost uplift.
Some issues raised on clarifying the controlled foreign company anti-diversionary rules (Clause 10 of the Draft TLAB: Section 9D(9A) of the Income Tax Act) 4.39.

The Income Tax Act contains Controlled Foreign Company (CFC) anti- avoidance provisions in section 9D.

These are aimed at taxing South African residents on the net income of a CFC.
NT explained that in order to strike a balance between protecting the South African tax base and the need for South African multinational entities to be competitive, the CFC rules contain various exemptions of certain types of business income, for example, the foreign business establishment exemption.

It said that this exemption makes provision for CFC income to be exempt if that income is attributable to a foreign business establishment as defined in section 9D of the Act.
NT explained that in order to limit tax avoidance, the foreign business establishment exemption does not apply if the CFC foreign business’s establishment income is 23 319 regarded as diversionary foreign business income in terms of the CFC anti- diversionary rules.

4.40.

NT stated that it had come to Government’s attention that certain taxpayers were circumventing the rule by merely entering into a contract of purchase in the country of the CFC.
It said that this implies that the purchase of goods took place in the country of residence of the CFC when the goods are never physically present in that country.

NT explained that it was proposed in the 2021 Draft TLAB that the diversionary rules focusing on the purchase of goods by CFCs be amended to provide clarity on the tax policy intent that when a CFC purchases goods, they should be delivered in the country of residence of that CFC.

4.41.
4.41.

Stakeholders said that while they acknowledged the concern relating to the mere conclusion of contracts in the country of residence of the CFC, the proposed amendments are too restrictive to CFCs that enter into genuine business transactions with persons outside of the country of residence of the CFC.
They submitted that the proposed amendments be withdrawn or alternatively the requirement for delivery should relate to the delivery of goods from the country of residence of the CFC to the South African resident rather than the delivery of goods to the CFC in its country of residence.

4.42.

NT rejected this submission by highlighting that while Government acknowledges business practices, this loophole in the diversionary rules should be closed.
Secondly, NT said that the alternative proposal suggested would still allow for the diversion of profits from South Africa, as a CFC, for example, in Country A, that signs a purchase contract with a third-party supplier in Country A, but with goods 24 320 originating from another country and are delivered directly to SA.

That transaction would arguably not result in imputation of net income from that transaction to South African residents.
Some issues raised on the VAT treatment of temporary letting of residential immovable property (Clause 54 of the Draft TLAB: New section 18D of the VAT Act) 4.43.

The VAT Act makes provision for the supply of residential fixed property by a VAT vendor (being a property developer) to be subject to VAT at the standard rate of 15 per cent.

This would entitle property developers to claim input tax credits.
However, the leasing of residential fixed property is an exempt supply which would generally result in the input tax being denied.

NT explained that where the property developer is unable to sell the residential fixed property and enters into a lease, until a buyer is found, the property developer is required to make an output tax adjustment based on the open market value of the residential fixed property when the residential fixed property is leased for the first time.
It further explained that concerns have been raised regarding the application of the VAT provisions in this regard, especially the inequitable value attributed to this change in use adjustment.

4.44.
4.44.

NT explained that in order to address these concerns, changes were proposed in the 2021 Draft TLAB by inserting a new section in the VAT Act that will deal with the deemed change in use adjustment when the residential fixed property is leased for the first time, including whether that deemed change in use adjustment results in the 25 321 residential fixed property exiting the VAT net or not and the VAT consequences of the subsequent sale of the residential fixed property.

4.45.
4.45.

Stakeholders commented that the change in use adjustment is in relation to fixed property that is temporarily let.

They said that the word “temporary” is linked to the intention of the vendor and as such, is subjective in nature and this is what creates the uncertainty.

They said that as such, a time limit as a proxy for intention will assist in providing certainty.

4.46.
4.46.

NT accepted this submission and explained that the proposed amendments will be further enhanced in order to specify what is envisaged by the words “temporarily applied” by introducing a new definition in section 18D.

4.47.
4.47.

Stakeholders further commented that the VAT payable on the change in use adjustment when the fixed immovable property is leased for the first time is still disproportionate to the exempt income earned by the developer and it is suggested that a formula be used for the adjustment which should be similar to the formula used in Australia.

4.48.
4.48.

NT responded that the proposed provision is designed to ease the output tax burden faced by property developers when the fixed property is leased for the first time because the proposed provision requires the developer to make an output tax adjustment on the adjusted cost, not the current open market value of the fixed property.

It said that the proposed amendment will be further enhanced to provide clarity on the input tax and output tax adjustments.

4.49.
4.49.

Some stakeholders submitted that the proposed amendments are not clear on what the situation would be where the developer chooses to permanently apply the 26 322 fixed property for rental income.

NT accepted this submission and stated that the proposed amendments will be further enhanced to clarify that in such instances the change in use will be a permanent change in use as envisaged by section 18(1), and that section 18(1) will be applicable.

4.50.
4.50.

Stakeholders commented that the wording of the proposed amendment in its current form creates the perception that the purchaser of the property will only be liable for the payment of VAT to the extent of the difference between the purchase price and the adjusted cost.

They said that in order to achieve the correct result in the circumstances, it is recommended that section 18D(4) be re-worded.
NT accepted this submission and re-worded the provision to split out the input tax and the output tax adjustments.

It said that the re-wording in the tabled Bill now clarify the situation where the vendor sells the property at a loss.

4.51.

Some stakeholders submitted that the 1st April 2022 is too late to assist developers who have been struggling with cash flow difficulties.
They proposed that the proposed amendment be backdated to 1st January 2018 when the first relief was withdrawn or from when there was a first lockdown (26th March 2020).

NT did not accept this submission, clarifying that amendments to tax legislation are usually only made retrospectively in instances of anti-avoidance measures and this proposal is aimed at providing relief to a specific sector of vendors (property developers registered for VAT).
27 323 Some issues raised on clarifying renewable energy premium beneficiaries (Clause 63 of the Draft TLAB: Section 6(2)(c) of the Carbon Tax Act) 4.52.

Section 6(2)( c) of the Carbon Tax Act makes provision for electricity generators liable for the carbon tax to offset the cost of their additional renewable energy purchases against their carbon tax liability.
NT explained that this provision was intended to address stakeholders’ concerns on possible double taxation due to the introduction of the carbon tax in addition to the “renewable IPP tariff” already applied under the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP).

4.53.
4.53.

NT explained that it had come to Government’s attention that some taxpayers are of the view that the Carbon Tax Act was ambiguous on the intended beneficiaries of this concession and requested clarity on whether renewable-based self-generation with electricity wheeling arrangements through Eskom would also be eligible to claim the renewable energy premium deduction.
It said that to address this, proposals were made in the 2021 Draft TLAB to clarify that: only entities that are liable for the carbon tax, conduct electricity generation activities and purchase additional primary renewable energy directly either under the REIPPPP or from private independent power producers would be eligible to claim the tax deduction for their renewable energy purchases, provided that the power purchasing agreement/contract exists.

4.54.
4.54.

Stakeholders commented that although clarifications were welcomed, they were concerned that reference to allowing only renewable energy purchases made in terms of a power purchase agreement (PPA) could create uncertainty as different types of 28 324 PPAs may exist.
They said that it was unclear whether a taxpayer that generates electricity from fossil fuels, has a power purchase agreement in place with a third party to purchase renewable energy and that third party supplies the electricity directly to the taxpayer for example, onsite solar PV project, and not through the national grid, would be eligible to claim the RE premium deduction.
They recommended that examples of eligible renewable energy purchases for the different PPAs are provided in the explanatory memorandum (EM).

4.55.

NT accepted that submission and explained that PPAs can exist for onsite renewable electricity purchases where there is direct supply of electricity to the buyer, and offsite electricity purchases where the producer supplies electricity to the buyer through the national grid and not directly to the buyer.
It said that renewable electricity purchases by taxpayers in terms of an offsite PPA would be eligible however, onsite PPAs would not be eligible as it resembles self-generation for own use and would not constitute additional electricity purchases.

It said that examples would be provided in the Explanatory Memorandum of the tabled Bill.
Some issues raised on Clarifying the definition and scope of carbon sequestration-limitation on biological sequestration to forest plantations (Clause 63 of the Draft TLAB: Sections 6(3) & 6(4) of the Carbon Tax Act) 4.56.

NT explained that in November 2020, a methodological guideline document was published by the Department of Forestry, Fisheries and Environment (DFFE) to provide methodologies for taxpayers to use for quantifying greenhouse gas emissions sequestration in the forestry industry.
It said that this methodological guideline covers 29 325 reporting and accounting parameters for sequestration across the forestry, paper and pulp, and manufacturing of harvested wood products (HWPs) industries.

It explained that for forestry plantations, the DFFE provides for emissions sequestered directly by forests to be deducted from fuel combustion emissions as well as emissions embedded in harvested wood products (HWPs) in line with the Intergovernmental Panel on Climate Change (IPCC) Guidelines.
4.57.

NT said that aligning the definition of sequestration in the Carbon Tax Act with the DFFE methodological guidelines is problematic.
It said that due to concerns about the permanence of sequestered emissions in HWPs and lack of control of the production processes by forestry companies beyond the mill gate and the robustness of the available emissions calculation methodologies, changes were made in the 2021 Draft TLAB that only actual forestry plantation sequestered emissions within the mill gate should be eligible for the deduction under the Carbon Tax Act.
Also, changes were made to the definition of biological carbon sequestration in section 6(3)/(4) of the Carbon Tax Act to limit it only to directly sequestered emissions by forest plantations.

4.58.
4.58.

Stakeholders commented that the industry had engaged extensively with the Department of Forestry, Fisheries and Environment (DFFE) over several years on the development of the Draft Methodological Guidelines for Quantification of Greenhouse Gas Emissions – Carbon Sequestration in the Forestry Industry to Support the Implementation of the Greenhouse Gas Emission Reporting Regulations.
They said that they were of the view that the methodological guideline does address concerns around the permanence of sequestered emissions in harvested wood products (HWPs), 30 326 the lack of control of the production processes by forestry companies beyond the mill gate and the lack of robustness of the available calculation methodologies.

4.59.

They suggested that the definition and scope of the sequestration deduction in the Carbon Tax Act be aligned with the methodological guideline.
NT accepted that submission and stated that changes will be made in the 2021 Draft TLAB to expand the scope of the sequestration deduction to also include harvested wood products for the pulp, paper and print activity.

It said that the sequestered emissions will be determined using the mass flow approach combined with the landfill approach to account for sequestered emissions as per the DFFE Carbon Sequestration Guideline, in the short term.
NT explained that from an emissions accounting perspective, for forestry management and HWP pools it will be important to account for gains and losses occurring from within the mill’s operational boundaries.

It said that for future carbon tax periods, as recommended in the Carbon Sequestration Guidelines, the 100- year accounting approach will be developed once industry specific studies are completed on suitable half-life (product decay rates) and product use period assumptions.
Some issues raised on aligning schedule 2 emissions activities and thresholds with the greenhouse gas emission reporting regulations of the DFFE (Clause 65 of the Draft TLAB: Schedule 2 of the Carbon Tax Act) 4.60.

The Carbon Tax Act came into effect on 1 of June 2019.

The tax base for the carbon tax are the greenhouse gas emissions that are reported annually by taxpayers to the DFFE as required under the National Greenhouse Gas Emission Reporting 31 327 Regulations.
Schedule 2 of the Carbon Tax Act outlines the activities that are subject to the carbon tax and is based on Annexure 1 of the National Greenhouse Gas Emission Reporting Regulations as reported emissions are subject to the carbon tax.

4.61.

NT explained that on 11 September 2020 the DFFE published the amendments to the National Greenhouse Gas Emission Reporting Regulations.
It said that Annexure 1 of the GHG emissions reporting regulations was amended to include changes to the activities required to report their emissions and thresholds, and the inclusion of new activities now reportable to DFFE.

Proposed changes were made in the 2021 Draft TLAB to Schedule 2 of the carbon tax act to ensure alignment with the amended GHG Emissions reporting regulations.

4.62.
4.62.

Stakeholders commented that a change that is effective from 11 September 2020 will apply to the tax period from 1 January 2020 to 31 December 2020, and result in a retrospective change in legislation.

They explained that in terms of the Carbon Tax Act, the tax period is from 1 January to 31 December.
They added that this will also result in an administrative burden as the tax returns for the tax period 1 January 2020 to 31 December 2020 had already been submitted as they were due for submission on 29 July 2021.
The stakeholders recommended that the amendments to Schedule 2 of the Carbon Tax Act shall apply to tax periods commencing on 1 January 2021, and aligned with the announcement in Annexure C of the 2021 Budget Review NT accepted this and made the necessary changes in the Bill to make the effective date 1 January 2021.

5.

COMMITTEE OBSERVATIONS 32 328 5.1.


On applying tax on withdrawals of retirement interest when an individual ceases to be a tax resident (Clauses 11 of TLAB: New section 9HC of the Income Tax Act), the Committee notes that this proposal was withdrawn as a result of submissions from stakeholders.
The Committee supports all measures aimed at dealing with erosion of the tax base and believes that the National Treasury should explore ways of dealing with the issue of ‘treaty override’ before reintroducing this proposal.

5.2.
5.2.

On curbing abuse in the Employment Tax Incentive (Clauses 58 & 59 of TLAB: Definition of “employee” and section 6 of the ETI Act), The Committee believes that National Treasury should closely consider criticisms that the ETI is not achieving the goals for which the incentive was introduced for.

There were criticisms from some stakeholders that the ETI is being paid for workers that companies would have employed anyway, and might therefore not be creating any new jobs.
The effect of this is that companies claim this incentive without contributing to the goals of the scheme and the state loses tax revenues without any correspondent increase in employment.

The Committee will request the National Treasury to provide it with a report on the effectiveness of the ETI since it was introduced.

5.3.
5.3.

The Committee notes that while the proposal on strengthening the rules dealing with limitation of interest deduction in respect of debts owed to certain persons not subject to tax (Clause 20 of TLAB: Section 23M of the Income Tax Act) remains in the tabled TLAB, it will no longer apply retrospectively but after an announcement by the Minister of Finance in the Annual National Budget.

5.4.
5.4.

On restricting the set-off of the balance of assessed losses in determining taxable income (Clause 19 of TLAB: Section 20 of the Income Tax Act), the Committee notes 33 329 that NT, in its response, acknowledged that this measure was first proposed before the Covid-19 pandemic hit our shores.

It said that the South African government holds the view that a broad tax base with as few distortions as possible, combined with a lower rate, will be more efficient.
It also acknowledged that businesses were facing difficult times and providing the space for their recovery was important.

The Committee welcomes any relief provided to taxpayers in distress as a result of COVID-19 and notes that this amendment will no longer apply retrospectively.

5.5.
5.5.

On clarifying rehypothecation of collateral within collateral lending arrangements (Clause 56 of TLAB: Section 1 of the Securities Transfer Tax Act), the Committee notes that this provision will no longer apply retrospectively, but from 1 January 2023, in order to avoid having to amend existing contractual agreements between affected parties who had already entered into legitimate transactions.
The Committee however believes that this is an important amendment and fully supports it as it is aimed at curbing possible abuse (where it occurs) of an incentive scheme in order to avoid securities transfer tax and/or capital gains tax, and therefore result in base-erosion.

5.6.
5.6.

On clarifying the definition of “contributed tax capital” (Clause 4(1)(c) of the Draft TLAB: Section 1 of the Income Tax Act), the Committee notes that the effective date for this proposal is being postponed again although NT had assured that it will no longer apply retrospectively and set the effective date as 1 January 2023.

The Committee wishes to caution against the making of too many concessions, especially on provisions that are directed at protecting the country’s tax base.

5.7.
5.7.

There are many other progressive amendments in the Bill, some of which no submissions were received.

The Committee wishes to acknowledge the extensive 34 330 consultative processes between NT and stakeholders which were held of 3 days in September.

6.

AMENDMENTS AND COMPLIANCE WITH THE MONEY BILLS ACT 6.1.
On 24 November 2021, the Committee received a letter (dated 23 November) from the Minister of Finance, Mr Enoch Godongwana, to request corrections to clause 4 and 56 of this Bill, in line with section 8(4) and 11(3) of the Money Bills Amendment Procedure and Related Matters Act, 2009.
The technical amendments correct the effective date for the proposed amendments from 1 January 2022 to 1 January 2023 as follows: o Clause 4 - The proposed amendment seeks to address tax avoidance concerns and clarify the definition of contributed tax capital and exclude the general repurchase of listed shares (share buy backs) by companies listed on the JSE or other South African Exchanges from the proposed anti-avoidance measure.
In the 2021 TLAB, the effective date for the proposed amendment was 1 January 2022.

It is proposed that the effective date should be postponed to 1 January 2023, to give both National Treasury and stakeholders more time to deliberate the impact of the proposed amendment.
• Clause 56 - The proposed amendment seeks to address tax avoidance concerns and clarify that the use of collateral for purposes other than subsequent collateral arrangements or proposed limited regulated transactions is against the policy rationale for the introduction of these provisions and could result in the avoidance of securities transfer tax or capital gains tax.

In the 2021 TLAB, the effective date for the proposed amendment was 1 January 2022.
It is proposed that the effective 35 331 date should be postponed to 1 January 2023, to give both National Treasury and stakeholders more time to deliberate the impact of the proposed amendment.

6.2.

The Committee notes and agrees with these amendments.

7.

CONCLUSION 7.1.
7.

CONCLUSION 7.1.

The Standing Committee on Finance, having considered the Tax Laws Amendment Bill [B22- 2021] (National Assembly- section 77), referred to it, and classified by the JTM as a Money Bill, reports the Bill with amendments [B22A – 2021] The Democratic Alliance (DA) reserve their position.

Report to be considered 36 332 13.


Report of the Standing Committee on Finance on the Tax Administration Laws Amendment Bill [B23 - 2021] (National Assembly- section 75), dated 24 November 2021 The Standing Committee on Finance, having considered the Tax Administration Laws Amendment Bill [B23 - 2021] (National Assembly- section 75), referred to it, and classified by the JTM as a section 75 Bill, reports the Bill as follows: 1.

INTRODUCTION AND BACKGROUND 1.1.


The Tax Administration Laws Amendment Bill (TALAB) was tabled in Parliament by the Minister of Finance on 11 November 2021, together with the 2021 Medium-Term Budget Policy Statement.

The TALAB is an ordinary section 75 (of the Constitution) Bill dealing tax administration.

1.2.
1.2.

As is usually the case, the tabling of this Bill was preceded by the publication of the draft version of the Bill (Draft TALAB) on 28 July 2021, together with the Draft Tax Laws Amendment Bill (Draft TLAB), and the second publication of the 2021 Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Draft Rates Bill).

1.3.

The Draft TALAB contained some tax proposals made in Chapter 4 and Annexure C of the 2021 Budget Review.
A separate second Batch of the Draft Tax Bills were published on 12 August 2021 containing emergency tax measures in response to the continuing COVID-19 pandemic and the recent July unrests.

These latter measures were over and above the tax proposals that were announced with 2021 Budget on 24 February 2021.

1 333 1.4.

The changes relating to emergency tax measures contained in the second batch of the 2021 Draft TALAB are incorporated into the Draft TALAB.

2.

PUBLIC PARTICIPATION 2.1.


The Committee was briefed by National Treasury and SARS on the Draft Bills on 17 August 2021 and held public hearings on 31 August 2021.

2.2.

On 10 November 2021, National Treasury and SARS presented their detailed responses to the Draft Bills to the Committee, addressing all the comments made during the public hearings and Committee briefings and deliberations.

2.3.
2.3.

The National Treasury and SARS reported that they received 76 written submissions from the public and responded to these comments during their own consultation processes.

They also hosted workshops which ran for three days on 07, 08 and 09 September 2021.

2.4.
The Committee received written and oral submissions from the following organisations and/or individuals: South Africa Tobacco Transformation Alliance (SATTA), British American Tobacco South Africa (BATSA), Limpopo Tobacco Processors (LPT), Phillip Morris (PM), South African Liquor Brandowners Association (SALBA), Beer Association of South Africa (BASA), AgriSA, Agbiz, Dr. Seun Muller, Banking Association of South Africa, South African Institute of Taxation (SAIT), South African Institute of Chartered Accountants (SAICA), PwC, Tax Consult.
It also received only written submissions from the Johannesburg Stock Exchange (JSE) and the Black Tobacco Farmers Association (BTFA).

2 334 3.

OVERVIEW OF THE TAX PROPOSALS IN THE TALAB 3.1.

TALAB contains the following proposals: 3.1.1.


Information required by law in receipts issued for tax-deductible donations (Clause 2 of TALAB; section 18A of the Income Tax Act) The information required by law in the receipts issued for tax-deductible donations is limited and entities issuing the receipts are not required to provide third-party data on the donations to SARS on a systematic basis.

SARS has detected that receipts are being issued by entities that are not approved to do so.
To ensure that only valid donations are claimed and to enhance SARS’ ability to pre-populate individuals’ returns, it is proposed that the information required in the receipts be extended to allow such information as the Commissioner may prescribe by public notice from time to time.

Third-party reporting will be extended in future to cover the receipts issued.

3.1.2.
3.1.2.

Administrative non-compliance penalties based on estimates for non- submission of six-monthly employees’ tax returns (Clause 6 of TALAB; para 14 of Fourth Schedule to Income Tax Act) SARS may impose a penalty for the non-submission of the six-monthly employees’ tax returns by employers.

The penalty is calculated as a percentage of the employees’ tax for the period covered by the return.
Where the employees’ tax for the period is not known to SARS, due to the non-submission of monthly or six-monthly returns, the penalty can only be imposed retrospectively.

This undermines the purpose and deterrent effect of the non-compliance penalty.

The proposed amendment enables 3 335 SARS to raise the penalty on an alternative basis in such cases, through an estimate of the employees’ tax with an adjustment once the actual employees’ tax is known.

3.1.3.
3.1.3.

Removal of double-penalty for the same incidence of non-compliance relating to employees’ tax (Clause 9 of TALAB: Para 17 of Seventh Schedule to Income Tax Act) Under paragraph 13 of the Fourth Schedule to the Income Tax Act, employers have an obligation to issue employees’ tax certificates (IRP5/IT3(a)) to their employees.

The certificates must reflect the total remuneration, including any fringe benefit and allowance, and the sum of employees’ tax (PAYE) deducted during that period.
If the employer under deducts PAYE and underpays SARS as a result of understating taxable fringe benefits SARS must impose a penalty of 10% on the underpayment.

The employer has an obligation to determine the cash equivalent of the value of the taxable benefit granted to its employees.

Paragraph 17 of the Seventh Schedule provides that the nature of the taxable benefit and the cash equivalent of the value thereof must be reflected on the employees’ tax certificate or a separate certificate.
If an employer fails to comply with this requirement, SARS may impose a penalty equal to 10% of the amount by which the cash equivalent is understated.

Two separate penalties may thus be imposed for the same fringe benefit understatement.

The proposed amendment removes this double penalty.

3.1.4.
3.1.4.

Expanding the purposes for which air cargo may be removed to degrouping depots (Clause 11 of TALAB: Section 6 of the C&E Act) Section 6(1)(hC) of the Customs and Excise Act, 1964, contemplates inter alia the unpacking or deconsolidation of imported air cargo at degrouping depots.

Current 4 336 practice has however shown that there is also a need to regulate the consolidation of air cargo at degrouping depots for export and the removal thereof to transit sheds.
The proposed amendment is intended to expand the purposes for which air cargo may be removed to degrouping depots to include consolidation and removal to transit sheds for export.

3.1.5.
3.1.5.

Amendments related to changes in the accreditation system (Clauses 12 and 14 of TALAB: Section 38A and 64E of the C&E Act, 1964) Amendments to sections 38A and 64E are required as a result of the announcement in Budget 2021 that SARS is changing its accreditation system to more closely reflect the requirements of the SAFE Framework of Standards issued by the World Customs Organisation.
The changes to the accreditation system have been introduced by a Rule in terms of section 64E(2) and these amendments remove outdated provisions.

3.1.6.

Increasing the caps for refunds and underpayments of duties (Clauses 13 and 16 of TALAB: Sections 47 and 76 of the C&E Act) Section 47(1) provides for the minimum thresholds in respect of underpayments of customs duties by taxpayers which the Commissioner may condone.
These values are currently very low and Clause 13 provides for increasing the values to R100.

A similar amendment is proposed in respect of section 76(5) in relation to minimum thresholds for refunds of duty to taxpayers.

Clause 16 provides for the increase of these values to R100.

5 337 4.

KEY ISSUES RAISED IN THE PUBLIC HEARINGS 4.1.


Key issues raised during the public hearings were on amendments to the Income Tax Act, 1962, and the Customs and Excise Act, 1964, Tax Administration, and the Disaster Management Tax Relief Administration Bill.

4.2.
Under the Income Tax Act, submissions were received on: Information required by law in receipts issued for tax-deductible donations (Clause 2 of the draft TALAB; section 18A of the Income Tax Act); Administrative non-compliance penalties for non-submission of six-monthly employees’ tax (EMP 501) returns (Main reference: Paragraph 14(6) of Fourth Schedule; clause 6 of the Draft Bill); and the Removal of a double penalty (Main reference: Paragraph 17 of Seventh Schedule; clause 9 of the Draft Bill); 4.3.
Under the Customs and Excise: Administration, submissions were received on: Interpretation of expression “Trade and Industry” where it occurs in certain provisions of the Customs and Excise Act, 1964 (Main reference: Sections 4, 21A, 43, 48, 53, 55, 56A, 75 and 114 Customs and Excise Act, 1964; Clause 10 of the draft Bill); expanding the purposes for which air cargo may be moved to degrouping depots to include consolidation and removal to transit sheds for export (Main reference: Section 6 of the Customs and Excise Act, 1964; Clause 11 of the draft Bill); deletion of reference to accreditation for purposes of changes in SARS’ accreditation system (Main reference: Section 38A of the Customs and Excise Act, 1964; Clause 12 of the draft Bill); increasing the minimum thresholds for underpayments of duty by taxpayers to ease administrative burden (Main reference: section 47(1) of the Customs and Excise Act, 1964; clause 13 of the draft Bill); expanding the scope of SARS investigation to confirm diesel refund claims to accommodate “wet” contractors (Main 6 338 reference: Section 75(1C)(a) of the Customs and Excise Act, 1964; Clause 15 of the draft Bill); increasing the minimum thresholds for payments of refunds by SARS to ease administrative burden (Main reference: Section 76(5) of the Customs and Excise Act, 1964; Clause 16 of the draft Bill); and unlawful possession or use of customs uniform an offence (Main reference: Section 79 of the Customs and Excise Act, 1964; Clause 17 of the draft Bill) 4.4.
Under the Tax Administration, submissions were received on: the extension of period within which taxpayer can request revision of an assessment based on an estimate (Main reference: Section 95 of the Tax Administration Act, 2011; clause 18 of the Draft Bill); and the extension of prescription in certain instances (Main reference: Section 99 of the Tax Administration Act, 2011; clause 19 of the Draft Bill).

4.5.
4.5.

Under the Disaster Management Tax Relief Administration Act, a submissions were received on the expansion of deferral of payment of employees’ tax liabilities for tax compliant small to medium sized businesses (Main reference: Definition of qualifying taxpayer in section 1 of the Disaster Management Tax Relief Administration Act, 2020; Clause 1 of Second Batch of draft Tax Administration Laws Amendment Bill, 2021).
Income Tax: Administration Some issues raised on Information required in receipts issued for tax deductible donations (Main reference: Section 18A of the Income Tax Act, 1962: clause 2 of the Draft Bill) 7 339 4.6.

Stakeholders commented that the proposed amendment may increase the compliance burden on public benefit organisations (PBOs), especially the smaller and unsophisticated ones that are already struggling with high compliance costs.
They said that in effect, the Commissioner may, as a result of the proposed amendment, require PBOs to file third- party returns in the future in respect of section 18A receipts issued.

They submitted that these smaller PBOs may not be able to comply with the third-party reporting requirements.

4.7.

SARS stated that this amendment is not required for third party reporting.

It clarified that the proposed amendment simply ensures consistency of the section 18A certificates with such reporting.
It explained that it is cognizant of the impact third party reporting may have on smaller PBOs and is therefore considering a differentiated approach for example by providing a simpler mechanism for third party reporting by smaller PBOs.

It explained further that the aim of third party reporting is to make it easier for those receiving the receipts (donors), as well as those issuing the receipts (PBOs), to comply with their obligations.
It said that it will be able to auto populate returns thereby making it easier for donors to claim their valid donations.

It added that this will encourage donations to PBOs by donors and lessen the burden on PBOs where taxpayers approach them for additional documentation requested by SARS during the verification process.

It said that PBOs will also be protected from fraudulent claims using their details and the reputational impact such claims have.
Some issues raised on administrative non-compliance penalties for non-submission of six-monthly employees’ tax (EMP 501) returns (Main reference: Paragraph 14(6) of Fourth Schedule; clause 6 of the Draft Bill) 8 340 4.8.

Stakeholders stated that the proposed paragraph 14(8) references to a subparagraph (6A).

It appears that the reference should be to subparagraph (7).

SARS accepted this and explained that this incorrect cross-referencing will be corrected in the final Bill to be submitted to Parliament.
4.9.

Some stakeholders commented that while it is clear that the purpose of levying penalties is to act as a deterrent against non-compliance, it is proposed that further clarity be provided on how the estimation will be calculated.

SARS explained that the PAYE administrative non-compliance penalty will be estimated using data readily available to SARS; for example, prior monthly or six-monthly liability details where such liability is not available for the reconciliation period that is outstanding.
In addition, SARS said that it may use information relating to salary paid per the corporate income tax return in order to estimate the PAYE liability on which to base the PAYE administrative penalty calculation.

4.10.

Stakeholders stated that where the employees’ tax is overestimated, this will result in a higher interim penalty being levied.

Upon correction at a later stage, an adjustment to a lower penalty amount may increase the unallocated payments against the taxpayer’s SARS account.
SARS explained that account and payment processing needs will be monitored.

It said that the current legislation permits SARS to adjust the administrative penalty in line with changes in the liability of the taxpayer and this principle applies to personal and corporate income tax administrative penalties as well.

4.11.
4.11.

Some stakeholders commented that it appears that an EMP501 submitted via e@syfile is regarded as not being submitted on eFiling if SARS performs an Employment 9 341 Taxes Verification (ETV) on the return.

They submitted than an EMP501 should not be regarded as not being submitted if it is subject to the SARS ETV process.
They said that the EMP501 should be reflected on the SARS system as being submitted but it should then be flagged as being under review, to prevent the proposed non-submission penalty from being raised incorrectly.

SARAS accepted this submission and explained that e@syFile and eFiling submissions are treated in the same manner and all submissions may go through the ETV process.
It explained that when the reconciliation is submitted, the status is updated to received, regardless of the ETV process being initiated or not.

SARS explained that this matter was further discussed with the commentator, which undertook to raise it through the recognised controlling body (RCB) channels for SARS to investigate should it resurface with the RCB member who raised it or more broadly.
Some issues raised on the removal of a double penalty (Main reference: Paragraph 17 of Seventh Schedule; clause 9 of the Draft Bill) 4.12.

Stakeholders commented that whilst they expect the proposed amendment would be welcomed by most tax practitioners and taxpayers, consideration should be given to whether the paragraph 17 penalty should remain.

They submitted that additional safeguards must be in place to ensure accurate determination of fringe benefits – hence the paragraph 17 penalty.
They added that at the same time, however, taxpayers should not be penalised under the Fourth and the Seventh Schedules where the mistake is the understatement of PAYE merely because of the understatement of fringe benefits.

They proposed that the Seventh Schedule penalty should only apply where an employer has understated the value of fringe benefits on the IRP5 but not for the purpose of completion of the EMP201.

10 342 4.13.
10 342 4.13.

SARS did not accept this submission and explained that the PAYE penalties are wide-ranging, and it is submitted will always be imposable in situations where the fringe benefit was not declared on the certificate to the detriment of the fiscus.
Customs and Excise: Administration Some issues raised on the interpretation of expression “Trade and Industry” where it occurs in certain provisions of the Customs and Excise Act, 1964 (Main reference: Sections 4, 21A, 43, 48, 53, 55, 56A, 75 and 114 Customs and Excise Act, 1964; Clause 10 of the draft Bill) 4.14.
Stakeholders commented that the proposed provision is drafted in such a way that it doesn’t actually amend the expressions in the Customs and Excise Act, but merely requires them to be read in a certain way.

They said that this would result in the Customs and Excise Act always having to be read with the Tax Administration Laws Amendment Act, 2021.

They said that the changes should be made by way of amendments to the Customs and Excise Act.
SARS explained that rather than amend multiple provisions in the Customs and Excise Act relating to the name change, Clause 10 will be replaced by an amendment of section 1 of the Customs and Excise Act providing for the insertion of the interpretation provision as a new subsection (5A).
Some issues raised on expanding the purposes for which air cargo may be moved to degrouping depots to include consolidation and removal to transit sheds for export (Main reference: Section 6 of the Customs and Excise Act, 1964; Clause 11 of the draft Bill) 11 343 4.15.

Stakeholders commented that the proposed amendment is welcomed as it enhances and streamlines the process and usage of de-grouping facilities in order to avoid unnecessary delays and congestions at transit sheds.
Some issues raised on the deletion of reference to accreditation for purposes of changes in SARS’ accreditation system (Main reference: Section 38A of the Customs and Excise Act, 1964; Clause 12 of the draft Bill) 4.16.

Comment: The amendment is as a result of the announcement in the Budget Review, 2021 that indicates that SARS is changing its accreditation system to more closely reflect the requirements of the SAFE Framework of Standards issued by the World Customs Organisation.
A simultaneous amendment to section 21(3)(c) of the Customs and Excise Act, is proposed so as to ensure uniformity with the announcement that was contained in the Budget Review, 2021.

4.17.

SARS did not accept this submission and explained that Rules under section 64E containing detail with respect to the new SARS accreditation system were promulgated on 23 July 2021.
It said that these rules contain transitional provisions and provide for the lapsing of Level 1 accredited client status in terms of the rules under section 64E as it existed immediately before that date.

It said that the effect of the new accreditation system is that certain provisions in the Act requiring a person to have accredited client status were reviewed, for example section 38A(2)(a)(i).
SARS explained that section 21(3)(c) providing that only importers who are accredited may store imported goods which are free of duty in special customs and excise storage warehouses for export, is retained.

The reason being that the payment of VAT on these goods is deferred while the goods are 12 344 stored in a special customs and excise storage warehouse.

This is still considered a benefit that only accredited importers should have.
Some issues raised on increasing the minimum thresholds for underpayments of duty by taxpayers to ease administrative burden (Main reference: section 47(1) of the Customs and Excise Act, 1964; clause 13 of the draft Bill) 4.18.

Stakeholders commented that a consequential amendment is proposed to the Value- Added Tax Act, 1991, to ensure alignment of the minimum values as it relates to VAT levied upon importations.
SARS responded that the suggestion deserves further consideration but the interaction between VAT and duty raises difficult questions in this context.

As a result this amendment is withdrawn for further consideration of the potential for an integrated approach.

Some issues raised on expanding the scope of SARS investigation to confirm diesel refund claims to accommodate “wet” contractors (Main reference: Section 75(1C)(a) of the Customs and Excise Act, 1964; Clause 15 of the draft Bill) 4.19.
Stakeholders commented that one of the current requirements is that, in order for a user to qualify for a diesel refund, the contracts must be on “dry” basis.

They explained that this means that the user must supply the diesel to the contractors, and they must just bring their own equipment.

They stated that the proposed amendment now allows contractors to purchase the fuel themselves and just invoice the user (“wet” basis).
They stated further that this is a welcomed development because it will ensure 13 345 that smaller users are not excluded as they often collect and dispense their diesel purchases directly for use without it being stored at the user’s premises.

It further allows for convenience because the contractors can get the diesel at their own time and just invoice the user.
Some issues raised on increasing the minimum thresholds for payments of refunds by SARS to ease administrative burden (Main reference: Section 76(5) of the Customs and Excise Act, 1964; Clause 16 of the draft Bill) 4.20.

Stakeholders submitted that a consequential amendment be made to the Value- Added Tax, 1991, to ensure alignment of the minimum values as it relates to VAT amounts paid upon importation on which refunds are claimed.
SARS conceded that the suggestion deserves further consideration but the interaction between VAT and duty raises difficult questions in this context.

As a result this amendment is withdrawn for further consideration of the potential for an integrated approach.

Unlawful possession or use of customs uniform an offence (Main reference: Section 79 of the Customs and Excise Act, 1964; Clause 17 of the draft Bill) 4.21.
Some stakeholders that the amendment is welcome as it clearly displays SARS’ intent to curb corruption.

Tax Administration 14 346 Some issues raised on the extension of period within which a taxpayer can request revision of an assessment based on an estimate (Main reference: Section 95 of the Tax Administration Act, 2011; clause 18 of the Draft Bill) 4.22.

Stakeholders commented that in order to achieve and clarify what the amendment sets out to do, i.e.
to provide SARS with the opportunity to extend the period in which a taxpayer may request a revision of an estimated assessment for up to forty days after the prescription date, the following wording is proposed: “(7) A senior SARS official may extend the period referred to in subsection (6) within which the return or relevant material must be submitted, for a period not exceeding forty business days after the relevant period referred to in section 99(1).” SARS did not accept this submission and explained that the proposed wording does not take account of the fact that the end of the initial period to request a reduced or additional assessment may fall after the prescription date, so the forty- day extension may fall later than forty days after the date.
It also provides for an extension past prescription, even where prescription is not an issue due to the timing of the making of an assessment based on an estimate.

The current wording of the proposed amendment is regarded as clear as to the purpose it seeks to achieve.

4.23.

Stakeholders commented that to the extent that the taxpayer has submitted the relevant information before the prescription date, the Commissioner is mandated to revise the assessments to reflect the correct outcome.
It now appears that the taxpayer’s submission of the relevant information to the Commissioner before the expiry of timelines does not guarantee the issuing of the revised assessments, as such a decision will depend on the Commissioner’s discretion.
SARS explained that based on the proposed revised wording of section 95(5) and (6), once a taxpayer submits the relevant material as required 15 347 in terms of section 95(6), SARS has one of the following three options and the taxpayer may respond accordingly: Option 1: After review SARS accepts the relevant material and makes a reduced or additional assessment as requested by the taxpayer; Option 2: After review SARS does not accept some of the relevant material and makes a reduced or additional assessment accordingly.
It said that in this instance, the reduced or additional assessment will be subject to objection and appeal in the ordinary course, since it replaces the assessment contemplated in section 95(1)(a) or (c); Option 3: After review SARS does not accept any of the relevant material, does not make a reduced or additional assessment and relies on the assessment based on an estimate.
In this regard the proposed new section 95(8) clarifies that, should SARS decide not to make a reduced or additional assessment, the taxpayer may object and appeal within the normal timeframes from the date of the decision.

4.24.

Stakeholders submitted that the proposal that the Commissioner may extend prescription or not in terms of his/her discretion may have adverse consequences against the taxpayer.
It is requested that some certainty is required in terms of how the Commissioner’s discretion will be exercised or alternatively, the relevant factors that the Commissioner will consider when exercising his/her discretion.

SARS explained that its discretion in granting the extension requested under section 95(7) is governed by section 33 of the Constitution, 1996, read with Promotion of Administrative Justice Act, 2000, (PAJA) which gives effect to section 33.
SARS further explained that it is required to be lawful, reasonable and procedurally fair as required by the circumstances of each case.

It said that as such circumstances will differ from case to case, it is not possible to legislate the criteria for all foreseeable circumstances that can lead to a request for an extension.

16 348 SARS explained that the requirements for a valid administrative decision are set out in PAJA and need not be restated for each of such decisions in each statute.
It added that in instances where SARS does not grant the requested extension, that decision will be subject to review in a court of law or alternatively the taxpayer may approach the Office of the Tax Ombud if the taxpayer believes SARS did not act in a lawful, reasonable and procedurally fair manner in the circumstances.
However, it is proposed to align the wording with the approach taken in the Tax Administration Act in respect of certain other extension decisions, namely that SARS may extend the period if reasonable grounds for an extension are submitted by the taxpayer.

4.25.
4.25.

Stakeholders commented that section 95 should include some wording that requires the Commissioner to request the relevant information within a reasonable timeframe, such as the proposed 40-day period before prescription to afford the taxpayer sufficient time to adequately address the request from the Commissioner.
They submitted that affording the Commissioner the opportunity to raise assessments first “without the reasonable timeframe requirement for the Commissioner to request information” may disadvantage the taxpayer.

4.26.

SARS did not accepted and explained that where it has raised an assessment based on an estimate under section 95(1)(c), it would be in instances where it requested relevant material from the taxpayer on more than one occasion, without receiving a response to those requests.
It said that section 95(6), read together with section 95(7), then provides the taxpayer with up to 80 business days to submit the relevant material even when prescription is an issue.

It added that this is regarded as sufficient time in order for the taxpayer to comply with the requirements of section 95(6).

17 349 4.27.
17 349 4.27.

Stakeholders stated that the addition to subsection (7) provides for an additional period for the submission of a return or relevant material pursuant to the issuing of an estimated assessment by SARS.

It is proposed that SARS include a practical example in the draft explanatory memorandum to assist taxpayer with the counting of the 40-day period.

SARS accepted this and explained that a practical example will be provided in the Memorandum of Objects.

4.28.
4.28.

Stakeholder requested clarity as to the form of the notice that SARS will issue to a taxpayer in the event of a taxpayer submitting relevant material in terms of section 95(6), where SARS finds that the material does not support an adjustment to the estimated assessment.
SARS explained that in the event that SARS finds that the return or relevant material submitted does not support the making of a reduced or additional assessment, a letter will be issued to the taxpayer, containing SARS’ grounds for the decision.

Some issues raised on the extension of prescription in certain instances (Main reference: Section 99 of the Tax Administration Act, 2011; clause 19 of the Draft Bill) 4.29.
Some stakeholders acknowledged that prescriptions would have to be extended in the circumstances envisaged by section 95(7), however the proposed amendment seemingly results in prescription never applying to the tax period in question.

They submitted that the extension of prescription should be only for a limited period and not in perpetuity.
SARS explained that this comment was misplaced because where a taxpayer submits a request in terms of section 95(7) for an extension of the initial 40-business day period, such extension is limited to a maximum of 40 business days post the initial 40- business day period under section 95(6) and prescription would not apply to the extent 18 350 that this period exceeds the relevant prescription periods contained in section 99(1).

That is to say for a maximum of 80 business days.


In the light of the following comment, however, the proposed amendment to section 99(2)(e) will be replaced by a proposed amendment to section 99(2)(d)(iv) to provide that prescription will not apply to the extent that it is necessary to give effect to a reduced or additional assessment requested under section 95(6).

4.30.
4.30.

Stakeholders commented that the current proposal only allows SARS to reduce an assessment post prescription if the period within which the request should have been was extended post prescription in line with the proposal in clause 18 of the draft Bill.
They proposed that section 99 be further amended to allow SARS to issue a reduced assessment post prescription where the section 93(1)(f) reduced assessment request was made prior to prescription, similar to section 99(2)(d)(iii) in respect of section 93(1)(d) reduced assessment requests.

They said that in their view, this is required especially absent any time period within which SARS must issue reduced assessments under section 93(1)(f) (we will submit this matter as part of the Annexure C proposals).
4.31.

SARS accepted the latter submission and explained that the amendment to section 95 to include the proposed new subsection (7), read with the amendment to section 99(2)(d) to include the proposed new item (iv), allows SARS to issue a reduced assessment post prescription where the reduced assessment request was made within the prescribed period.
Disaster Management Tax Relief Administration Bill 19 351 Some issues raised on the expansion of deferral of payment of employees’ tax liabilities for tax compliant small to medium sized businesses (Main reference: Definition of qualifying taxpayer in section 1 of the Disaster Management Tax Relief Administration Act, 2020; Clause 1 of Second Batch of draft Tax Administration Laws Amendment Bill, 2021) 4.32.
Stakeholder commented that to qualify for the new PAYE and ETI relief, a taxpayer must be a ‘qualifying taxpayer’ which is defined as a person conducting a trade.

They said that Public Benefit Organisations (PBOs) approved in terms of section 30 of the Income Tax Act and many other exempt organisations such as recreational clubs, professional bodies and schools are effectively excluded from this definition as most of them do not conduct a trade.
They added that as these organisations, especially PBOs, play a significant role in our society and have been affected dramatically by the COVID-19 lockdown (and will be affected for many months thereafter as they may no longer receive donations that they previously relied upon), they submit that the definition of ‘qualifying taxpayer’ should be amended to include these organisations as mentioned above.

4.33.
4.33.

SARS did not accept this submission and explained that the design of these measures mirrors that of the measures in 2020 in order to enable their speedy implementation without significant systems development on the part of employers, payroll providers and SARS.

SARS further said that as noted when a similar comment was made with respect to the Disaster Management Tax Relief Administration Bill, 2020, automatic PAYE relief is targeted at small to medium sized businesses.
SARS said that Gross income, which is a key requirement, is a poor measure of PBOs’ size, since their receipts are often of a capital nature.

It explained that PBOs may apply for case-by-case relief by 20 352 SARS, where their actual circumstances can be properly considered.

It further explained that the concept of a qualifying taxpayer is not used in the ETI relief measure.

5.

COMMITTEE OBSERVATIONS 5.1.


The Committee welcomes the amendments which are directed at improving SARS’ administrative capacity, efficiency and enforcing compliance.

The Committee believes that all public comments in the Bill were adequately responded to by SARS and supports this Bill.

6.

CONCLUSION 6.1.
6.

CONCLUSION 6.1.

The Standing Committee on Finance, having considered the Tax Administration Laws Amendment Bill [B23 - 2021] (National Assembly- section 75), referred to it, and classified by the JTM as a section 75 Bill, reports that it has agreed to the Bill.

.

The Democratic Alliance (DA) reserves its position.

Report to be considered 21 353 14.


Report of the Standing Committee on Finance on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B21 - 2021] (National Assembly- section 77), dated 24 November 2021 The Standing Committee on Finance, having considered the Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B21 - 2021] (National Assembly- section 77), referred to it, and classified by the JTM as a Money Bill, reports the Bill as follows: 1.

INTRODUCTION AND BACKGROUND 1.1.


The Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill) was tabled in Parliament by the Minister of Finance on 11 November 2021, together with the 2021 Medium-Term Budget Policy Statement.

The Rates Bill is a section 77 (of the Constitution) Bill dealing with national taxes, levies, duties and surcharges.

1.2.
1.2.

The tabling of this Bill was preceded by the publication of the draft version of the Bill (Draft Rates Bill) together the 2021 Budget on 24 February 2021.

It was published again on 28 July 2021, together with the Draft Tax Laws Amendment Bill (Daft TLAB), and the Draft Tax Administration Laws Amendment Bill (Draft TALAB), to solicit public comment.

1.3.
1.3.

The Rates Bill gives effect to changes in rates and monetary thresholds to the personal income tax tables and increases of the excise duties on alcohol and tobacco.

1 354 2.

PUBLIC PARTICIPATION 2.1.

The Committee was briefed by National Treasury and SARS on the Draft Bills on 17 August 2021 and held public hearings on 31 August 2021.

2.2.
2.2.

On 10 November 2021, National Treasury and SARS presented their detailed responses to the Draft Bills to the Committee, addressing all the comments made during the public hearings and Committee briefings and deliberations.

2.3.

The National Treasury and SARS reported that they received 76 written submissions from the public and responded to these comments during their own consultation processes.

They also hosted workshops which ran for three days on 07, 08 and 09 September 2021.

2.4.
The Committee received written and oral submissions from the following organisations and/or individuals: South Africa Tobacco Transformation Alliance (SATTA), British American Tobacco South Africa (BATSA), Limpopo Tobacco Processors (LPT), Phillip Morris (PM), South African Liquor Brandowners Association (SALBA), Beer Association of South Africa (BASA), AgriSA, Agbiz, Dr. Seun Muller, Banking Association of South Africa, South African Institute of Taxation (SAIT), South African Institute of Chartered Accountants (SAICA), PwC, Tax Consult.
It also received only written submissions from the Johannesburg Stock Exchange (JSE) and the Black Tobacco Farmers Association (BTFA).

3.

OVERVIEW OF THE KEY TAX PROPOSALS IN THE DRAFT RATES BILL 3.1.
The Rates Bill contains measures to fix the rates of normal tax: to amend the Income Tax Act, 1962, so as to amend rates of tax and monetary amounts; to amend the Customs and Excise Act, 1964, so as to amend rates of duty in Schedule 1 to that Act; to insert new 2 355 tariff items; to delete tariff items; to delete rebate items; to insert rebate items; to amend the Carbon Tax Act, 2019, so as to amend rate of tax; and to amend the Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2020, so as to provide for corrections; and to provide for matters connected therewith.
3.2.
The Bill consists of nine clauses as follows: Clause 1 – fixing of rates of normal tax as detailed in Schedule 1; Clause 2 – increase in primary, secondary and tertiary rebates; Clause 3 – increase values of medical tax credits; Clause 4 – adjustment to align with new tax free threshold; Clause 5 – amendment of customs and excise Act to include the excise schedule dealing with increase in alcohol and tobacco; Clause 6 – increase in carbon tax rate; Clauses 7 and 8 – technical amendments to 2020 Rates Bill; and Clause 9 – Short title.
3.3.

The main tax proposals in the 2021 Budget and Rates Bill include a personal income tax (PIT) relief above inflation increase in the brackets and rebates, an increase of 15 cents per litre in the general fuel levy, increasing the Road Accident Fund (RAF) levy by 11 cents per litre, and an above-inflation increase in excise duties on alcohol and tobacco.

It also contained proposals on medical tax credits increases in line with inflation.

3.4.
3.4.

Another measure announced in the Rates Bill is the increase in the carbon tax rate by 5 percent from R127 to R134 per tonne of carbon dioxide equivalent from 1 January 2021.

4.

KEY ISSUES RAISED IN THE PUBLIC HEARINGS 4.1.

Key submissions were made on the general increase in the excise duty on alcohol and tobacco by 8 per cent (Main reference: Schedule No 1 to the Customs and Excise Act, 1964: clause 5 of the Draft Rates Bill).

3 356 4.2.
3 356 4.2.

Stakeholders raised concerns that the proposal to increase the excise rate by 8 per cent with the current status of a struggling economy and high unemployment rate of 32.6 per cent (as it then was) was inconceivable.

They argued that the increase was unsustainable and detrimental to the continued survival of the already distressed legal cigarette industry in South Africa.
To this submission, NT clarified that excise taxes on tobacco products are intended to reduce consumption and improve public health whilst generating revenue for Government.

NT stated that the World Health Organisation recommends an excise incidence of at least 70 per cent to effectively reduce consumption.

An 8 per cent increase will shift the excise duty incidence to only around 45 per cent in South Africa.

4.3.
4.3.

Other stakeholders commented that the excise hike has placed the excise incidence on the cigarette’s Most Popular Price Category (MPPC) at 45 per cent compared to a targeted incidence of 40 per cent as per the National Treasury’s excise policy.

They said that the total tax incidence on the MPPC now sits at a significant 58 per cent against the background of falling consumer affordability.
They stated further that the excise increase is non- compliant to the extent to which it exceeds Government’s own excise policy on tobacco products, being the higher of 40 per cent excise incidence on the MPPC or projected consumer price inflation.

4.4.
4.4.

NT clarified that although the proposed increase keeps the tax incidence above the 40 per cent policy guideline, the industry has continued to absorb a portion of the excise increases as opposed to passing them through to consumers, which leads to an overestimated tax incidence.

NT said that the adjustments correct for any price movements that tend to undermine Government’s policy intention to reduce consumption and improve public health.
NT further added that the excise increase also seeks to ensure 4 357 that tobacco products do not become affordable over time as this will increase consumption, which goes against public health policy objectives.

It further clarified that the targeted incidence of 40 per cent is a policy guideline and need not be followed by Government every year.
It added that given that the incidence has remained above the guideline in recent years, the 2021 Budget Review announced a review on the excise policy framework for tobacco.

4.5.

Stakeholder commented that the excise policy was communicated to all stakeholders including investors in the tobacco sector, thereby creating a legitimate expectation Government will always abide by its own policy pronouncements.
They submitted that this clear disregard of the cigarette excise policy violates Government’s commitment to fair administrative treatment of investors, as provided under the Protection of Investment Act and the Constitution.

They explained that it has been stated that under the fair administrative treatment standard, Government is generally expected to implement changes to policies in good faith and in a manner that is not arbitrary, following due process.
They said that the excise policy is still in place and National Treasury only intends to review the policy during this current financial year.

It is therefore improper for Government to openly ignore its own excise policy for four consecutive excise review periods.

4.6.

NT responded that the adjustments in excise duties do not disregard excise policy, they instead prioritise the policy objectives communicated to all stakeholders – discouraging consumption and revenue generation.
It explained that the adherence to the policy guidelines is not only dependent on Government’s annual excise rate increases but also on the behaviour of the industry regarding the excise pass-through and pricing of 5 358 tobacco products.

If the tobacco products’ price increases are lower than excise rate increases, it’s inevitable that the incidence will be exceeded.

4.7.

Stakeholders commented that NT uses Peter Stuyvesant as the anchor brand in the calculation of the MPPC.
However, according to an Ipsos Market Analysis, the MPPC now sits at the low value for money segment, with the anchor brand retailing for R 22.70 (Revised MPPC).

They said that based on the proposed excise rate, excise alone will constitute 85 per cent of the MPPC against an excise policy of 40 per cent of the MPPC.

They submitted that the total tax incidence on the Revised MPPC is 99 per cent – and makes South Africa by far the leading country in the world in terms of total tax incidence on cigarettes.
They said that this position is clearly unsustainable and unreasonable and NT should determine the appropriate tax increases based on this Revised MPPC.

4.8.

NT explained that a revision of the MPPC to the proposed R22.70 will be a fundamental or substantive policy change with significant ramifications for tobacco control policy in South Africa.
It said that the current benchmarking using MPPC already has differential impacts on cigarette products in terms of excise burdens, and as a result NT does not envisage a situation where there is a reversal on the current levels of excise duty rates.

However, as announced in the 2021 Budget Review, the excise policy framework for tobacco products is currently under review and some of these issues will be considered; inputs from all stakeholders will also be considered.

4.9.
4.9.

Other stakeholders argued strongly that Government should be focusing excise duty on pipe tobacco products.

They argued that pipe tobacco has an elevated toxicant profile compared to cigarettes.

Ironically, the excise rate on pipe tobacco is only 21 per cent of the excise paid on factory manufactured cigarettes, they added.
They explained that excise 6 359 incidence on the weighted average price of pipe tobacco is as little as 29 per cent compared to an excise incidence of 45 per cent on the MPPC of factory manufactured cigarettes.

Contrary to the National Treasury’s position on this category, there is sufficient room to increase the price further, according to the toxicant continuum argument, without impacting sales in the significant way.
It can also be argued that this favourable excise treatment of the pipe tobacco category amounts to unfair and discriminatory treatment of “like or similar” products, in violation of the national treatment principle as enshrined in many treaties to which South Africa is party to.

Clearly, this position poses a legal challenge for Government in the future.

Accordingly, we recommend that excise on pipe tobacco be increased to at least 75 per cent of the excise rate of cigarette excise.
The foregoing is in line with best practice and ensures equality and fairness in the tax treatment of tobacco products in South Africa.

4.10.

NT did not accept these submissions highlighting that the reasons for the divergence in excise duty rates per category include the application of the benchmark guideline of 40 per cent of the retail selling price of the most popular brand within each product category (i.e.

excise tax incidence) and the disproportionate pricing of tobacco products concerned.
It added that cigarettes make up a larger proportion of the tobacco market.

4.11.

Other stakeholders raised a similar argument as above about heated tobacco products’ (HTPs) excise duty being 25 per cent less than that of cigarettes, is significantly below the excise tax differential in most of the other countries where these products are now available and where switching from cigarettes, as the most harmful way of consuming nicotine, is being partly driven through excise tax policy.
NT responded that excise taxes on all tobacco products are intended to reduce consumption and improve public health.

It 7 360 explained that in line with the World Health Organisation’s Framework Convention on Tobacco Control’s guiding principles, specifically, the one contained in Article 4.2(b), South Africa also intends to discourage initiation because Government recognises that all forms of tobacco use are harmful, including the use of HTPs.
It explained that the concessionary rate given to HTPs should not be interpreted as de facto support for either cigarettes or HTPs, but as an introductory rate that is subject to review.

4.12.

On the increased excise on alcohol, stakeholders commented that the impact of deviation from tax policy guidelines is a negative investor sentiment resulting in the inability for business to forecast; inability for business to plan; loss of jobs; reduced investment and reduced revenues.
They said that the tax incidence has far outgrown the economic viability relative to the inflation rate and that of the excise tax instrument, therefore, it can no longer be a viable economic growth or stimulus metric without due consideration for the related tax incidence.

They submitted that at minimum, given the factors under consideration, an increase in excise duties should be considered in line with or below the inflation rate.

4.13.
4.13.

NT stated that the adjustments in excise duties prioritise the main policy objectives communicated to all stakeholders – discouraging harmful consumption and revenue generation.

The incidence targets relating to wine, beer and spirits which are currently set at 11, 23 and 36 per cent of the weighted average of the retail price respectively apply, but only as a policy guideline.

4.14.
4.14.

Other stakeholders urged Government in the short to medium term to create a stable investment environment by operating within the existing policy framework.
They said that this may mean that in the next round of excise adjustments that Government, and National 8 361 Treasury in particular, will have to consider freezing further adjustments until such time as Government returns to its policy framework, where after adjustments in line with inflation will give investors the certainty that they require to continue investing in the sector.

4.15.
4.15.

NT responded that there is an excise tax policy in place to increase the excise rates by at least inflation or targeted incidence, whichever is higher, on an annual basis.

It added that the adherence to the policy guidelines is not only dependent on Governments’ annual excise rate increases but also on the behaviour of the industry regarding the excise duty pass-through and pricing of alcoholic products.
If the price increases are lower than excise rate increases, it is inevitable that the incidence will be exceeded.

4.16.

Stakeholders commented that excise tax increases impact more than just the beer manufacturer: packaging companies, equipment providers, technicians, transport, advertising agencies, bars, retailers, restaurants, moreover, the consumer.

They explained that tax legislation applicable to excise duties in beer are administered on a Duty at Source (DAS) basis.
The excise duties incurred during manufacturing and removal are levied by the manufacturer but subsequently passed on throughout the supply chain.

They said that while this is an efficient mechanism for tax administration; the unintended consequence of DAS in the beer industry is that the excise duty levied at production is ultimately levied, with a multiplier effect, on the consumer.

The consumer ends up partially absorbing the cost of the excise duty.
Given this, it is contended that due consideration should be given to the consumer when considering excise duty increases, especially given the current economic climate and the impact that another above inflation rate increase of 8 per cent would have throughout the supply chain and ultimately the consumer.

9 362 4.17.

NT explained that the alcohol tax regime applies a specific excise duty rate which is the same throughout the supply chain.
The application of DAS is cost effective for the administration of the excise duty regime.

Unfortunately, SARS (or National Treasury) cannot prescribe how the pricing mechanisms should work in the industry supply chain.

The implementation of excise duties on alcoholic products is done with consumers in mind –only price increase that are felt by the consumer will reduce consumption.

4.18.
4.18.

On illicit trade of alcohol and tobacco products, stakeholders commented that it was important for Government to use excise policy to suppress the growth of the illicit market, by closing the gap between duty not paid (DNP) and duty paid (DP) prices, through gradual excise increases typically in line with inflation.
They said that this allows the recapture of illicit volumes into the legal market and the meeting of public health objectives (which include the reduction of consumption from both the legal and illegal market).

4.19.

NT responded that the problem of illicit trade cannot be sorted out through the excise rate adjustments but needs to be effectively addressed through robust compliance and law enforcement mechanisms.
It sad that SARS has been working hard to rebuild internal capacity and has also, through the Inter-Agency Working Group (IAWG) on Illicit Trade, been implementing compliance and enforcement measures.

This is evident from a number of raids, seizures and destruction of illegal cigarettes conducted recently as profiled in the media.

4.20.
4.20.

There were other comments made and responses made which are not covered in this report but can be accessed from NT and SARS’ response document presented to the Committee on 10 November 2021.

10 363 5.

COMMITTEE OBSERVATIONS 5.1.

The Committee notes that the 2021 Budget contained no measures to raise additional revenue, despite the projected shortfall of R213.2 billion compared to the estimates of the 2020 Budget.
The Committee notes further that this was done in order to support households and businesses as the pandemic continued.

Instead, previously announced tax increases of R40 billion were withdrawn.

5.2.
5.2.

The main tax proposals in the 2021 Budget and Rates Bill included: a personal income tax (PIT) relief above inflation increase in the brackets and some rebates; an increase of 15 cents per litre in the general fuel levy; increasing the Road Accident Fund (RAF) levy by 11 cents per litre, and an above-inflation increase in excise duties on alcohol and tobacco by 8%.

It also contained proposals to adjust the medical tax credits increases in line with inflation.

5.3.
5.3.

The Committee further notes that the projected relief on personal income tax was projected at R2.2 billion, offset by R1.9 billion increase in excise duties and R0.4 billion in export duties.

The 2021 Budget proposed the adjusting of PIT brackets and rebates by 5 per cent, which was above the expected inflation of 4.2 per cent.

The Committee further notes that without any of these adjustments, government would have raised around R11.2 billion.

5.4.
5.4.

The Committee further notes and welcomes that the proposals in this Bill increased medical tax credits from R319 per month to R332 for the first two beneficiaries and from R215 to R224 for additional beneficiaries, which is an increase of R4.2 per cent in line with inflation.

11 364 5.5.

The Committee further notes and welcomes that the bulk of the relief in these announcements were targeted at middle to lower income earners.

5.6.
5.6.

The Committee further notes the above inflation increases in alcohol and tobacco excise duty that were expected to raise about R1.8 billion, with the targeted excise burden for wine, beer and spirits being 11, 23 and 36 per cent of the weighted average retail selling price, respectively.

The targeted excise burden for tobacco was 40 per cent of the retail selling price of the most popular brand.
Most categories on the latter were adjusted by more than inflation (8 per cent) and effective from 24 February 2021.

The Committee further notes that excise payments for alcohol were deferred to take account of lockdown selling restrictions, thus providing some relief to the industry.

5.7.

The Committee notes that the key submissions received on this Bill were on the alcohol and tobacco excise.
While there was a lot of opposition to these amendments, the Committee believes that they were necessary as they are aimed at behavioral modification of reducing consumption and promoting public health.

The Committee believes that excise duties on alcohol and tobacco will always be strongly opposed, for reasons not related to the policy objectives of reducing consumption and promoting public health.

5.8.
5.8.

The Committee further notes and welcomes the announcement in the 2021 Budget Review that the excise policy framework for tobacco products is currently under review and believes that some of these contentious policy issues raised by stakeholders in the hearings and inputs from all stakeholders will also be considered.

12 365 5.9.
12 365 5.9.

The Committee notes the illicit trade in alcohol and tobacco is a serious problem, and believes more needs to be done in terms of compliance and law enforcement mechanisms to curb this issue.

6.

CONCLUSION 6.1.

The Standing Committee on Finance, having considered the Rates and Monetary Amounts and Amendment of Revenue Laws Bill [B21 - 2021] (National Assembly- section 77), referred to it, and classified by the JTM as a Money Bill, reports that it has agreed to the Bill.
The Democratic Alliance (DA) reserves its position.

Report to be considered 13 366 15.

REPORT OF THE PORTFOLIO COMMITTEE ON TRANSPORT ON THE 2021/22 FIRST QUARTER EXPENDITURE OF THE DEPARTMENT OF TRANSPORT, DATED 23 NOVEMBER 2021 The Portfolio Committee on Transport, having considered the expenditure of the Department of Transport for the First Quarter of the 2021/22 financial year, reports as follows: 1.
INTRODUCTION The prime mandate of the Committee is governed by the Constitution of the Republic of South Africa, 1996 (“the Constitution”), in respect of its legislative and oversight responsibilities as public representatives.

It is required to consider legislation referred to it and consider all matters referred to it in terms of the Constitution, the Rules of the National Assembly or resolutions of the House.

It is also required to respond to matters referred to it by Government within its mandate.
In addition, the Committee is entrusted with considering the budgets, Strategic Plans and Annual Performance Plans of the Department and entities that fall within the transport portfolio.

This report provides an overview of the expenditure of the Department of Transport for the First Quarter of the 2021/22 financial year, as presented to the Committee on 1 September 2021.

2.
2.

ANALYSIS OF THE 2021/22 FIRST QUARTER EXPENDITURE OF THE DEPARTMENT OF TRANSPORT 2.1 INTRODUCTION In 2021/22, the budget allocation of the Department of Transport (“the Department”) stands at R66.7 billion.

By the end of the First Quarter of 2021/22, the Department spent R14.6 billion against the Quarter’s projection of R15 billion.1 Spending was R383.7 million (or 2.6%) lower than projected.

This was mainly in transfers and subsidies under the Road Transport and Public Transport programmes.
1 National Treasury (2021), p. 138.

1 367 The Department spent R114.3 million against the First Quarter projection of R127.8 million for Compensation of Employees.2 This was R10.6 million (or 13.5%) lower than projected mainly due to the slow filling of vacant posts.3 The Department had 748 filled posts against a funded establishment of 921 posts.

This represented a vacancy rate of 18.8% (or 173 vacant posts).
2.2 BUDGET EXPENDITURE PER PROGRAMME Table 1: Budget Expenditure per Programme, First Quarter 2021/22 % 497 92.2 497 92.2 96.8 14.6 19.5% 119 15.8%4 16.7 m o r f e c n a i r a V d e t c e j o r P 22.2 2.1 e m m a r g o r P n o i l l i M ’ R Administration Integrated Transport Planning Rail Transport 16 785.8 16 785.8 3 714.2 22.1% 3 717.9 3.7 Road Transport 34 166.7 34 166.7 9 361.9 27.4% 9 461.3 99.4 m o r f e c n a i r a V % 18.6% 12.5% 0.1% 1.1% Civil Aviation 503.9 503.9 116.6 23.1% 143.7 27.1 18.8% g n i d n e p S 9 1 - D I V O C 0.2 0.0 0.0 0.0 0.0 Transport Maritime Transport 157.5 157.5 17.5 11.1% 39.8 22.3 56% 0.0 Public Transport 14 488.6 14 488.6 1 280.45 8.8%6 1 487.3 2077 13.9% 0.0 2 National Treasury (2021), p. 140.
3 Ibid.

4 The Department reported this (per its presentation to the Committee) percentage as 16%.

5 The Department reported this (per its presentation to the Committee) line item expenditure as 1 340.9.

6 The Department reported this (per its presentation to the Committee) percentage as 9%.

7 The Department reported this (per its presentation to the Committee) line item variance as 146 371.
2 368 Total8 66 691.8 66 691.8 14 601.99 21.9% 14 985.6 383.7 2.6% 0.2 Source: (National Treasury (2021) 2.2.1 Programme 1: Administration By the end of the First Quarter, the Administration programme spent R96.8 million against a projection of R119 million for this period.
Spending was R22.2 million (or 18.6%) slower than projected mainly due to the slow filling of vacant posts, and slow spending on business activities such as travel and subsistence, as well as advertising.10 2.2.2 Programme 2: Integrated Transport Planning The Integrated Transport Planning programme spent R14.6 million against the First Quarter projection of R16.7 million.
Spending was R2.1 million (or 12.5%) lower than projected, largely due to slow progress on the Regional Corridor and the Autonomous Vehicle Regulations projects.11 The Department also indicated that the under expenditure was due to slow filling of vacant posts and on goods and services items such as travel and subsistence due to less travelling as a result of the Covid-19 pandemic.
2.2.3 Programme 3: Rail Transport By the end of the First Quarter of 2021/22, the Rail Transport programme spent R3.71 billion against the Quarter’s projection of R3.72 billion.

Spending was R3.7 million (or 0.1%) lower than projected, in large part, due to slow progress on projects such as the White Paper for Rail Transport, 8 The table does not indicate the Direct charge: International Oil Pollution Compensation Fund budget of 11 602, however, this budget remains unspent and available.
9 The Department reported this (per its presentation to the Committee) total as 14 662.5.

10 National Treasury (2021), p. 139.

11 Ibid.

3 369 and the National Rail Safety Amendment Bill.12 The Department also indicated that the under expenditure was also due to slow spending on travel and subsistence due to less travelling.

2.2.4 Programme 4: Road Transport The Road Transport programme spent R9.4 billion against a projected R9.5 billion at the end of the First Quarter.
Spending was R99.4 million (or 1.1%) lower than projected.

Delays in spending under the programme were due to transfers to the Road Traffic Infringement Agency (RTIA) that had been lower than previously anticipated.13 Funding for the rollout of the Administrative Adjudication of Road Traffic Offences (AARTO) is based on an agreement between the Agency and the Department.
Instead of a lump sum transfer, a revised agreement now sees the rollout taking place over several phases, and transfers will be made based on the achievement of milestones of each phase.14 The Department also indicated that the under expenditure was also linked to the following projects: Development of Road Disaster Management Plan and the Sustainable Roads Implementation Guideline as well as Programme Development for S’hamba Sonke.
2.2.5 Programme 5: Civil Aviation Transport The Civil Aviation Transport programme spent R116.4 million against the First Quarter projection of R143.7 million.

Spending was R27.1 million (or 18.1%) lower than projected, mainly under goods and services due to less travel.

The Department also indicated that there was slow filling of vacant posts under this programme.
A delay in payments for foreign membership to the Aviation Safety Organisation (ASO), International Civil Aviation Organisation and Commission and Cospas-Sarsat also contributed to the slower than planned spending.15 12 National Treasury (2021), p. 139.

13 Ibid.

14 Ibid.

15 Ibid.

4 370 2.2.6 Programme 6: Maritime Transport The Maritime Transport programme spent R17.5 million against a projected R39.8 million in the First Quarter.
Spending was R22.3 million (or 56%) lower than projected due to the suspended International Maritime Organisation (IMO) World Maritime Day Parallel Event.

In addition, the Department was awaiting invoices from the Ports Regulator for work done on the Department’s behalf.16 2.2.7 Programme 7: Public Transport The Public Transport programme’s expenditure by the end of the First Quarter was R1.3 billion against the Quarter’s projection of R1.5 billion.
Spending was R207 million (or 13.9%)17 lower than projected, largely owing to a delay in transfers to the Taxi Recapitalisation Programme (TRP), the procurement of services for the Public Transport Grant monitoring programme, and the implementation of Shova Kalula programme.18 2.2.8 COVID-19 Spending As at 30 June 2021, the Department spent R226 million on COVID-19 related projects and business activities.19 The COVID-19 spending mostly pertained to “the procurement of protective equipment and other interventions within the Department, as well as support to public transport operators in response to the pandemic”.20 The Department indicated that there was still R774 million available budget for the PRJ-COVID-19 Response.
16 National Treasury (2021), p. 139.

17 The Department in its presentation to the Committee indicated that this underspent was by R146 million – differing substantially from the figures in the National Treasury report on this quarter’s expenditure.

18 National Treasury (2021), p. 139.

19 Ibid.

20 Ibid.

5 371 3.


COMMITTEE OBSERVATIONS Members made the following observations during discussions: 3.1 Out of the 35 targets set for the First Quarter, the Department only met 26 targets, and at only 40% performance the Integrated Transport Planning Programme was the worst performer for this quarter.

While the Department had projected to spend R15 billion by the end of the First Quarter of 2021/22, it ended up spending R14.6 billion – i.e.
21.9% of the total available budget of R66.7 billion for 2021/22.

This translated into the delay of R383.7 million (or 2.6%); expenditure was lower than projected.
The Public Transport programme had spent R122.1 million lower than projected due to lower than expected demand on the Taxi Recapitalisation Programme and delays in projects such as Public Transport Grant Monitoring and Shova Kalula Bicycle Programme, following the COVID-19 pandemic lockdown 3.2 The R96 million underspending in the monitoring of the PTOG due to a delay in the approval of the business case and gap analysis was noted.
3.3 It was noted that the Department’s report on its expenditure did not mention a budget for the formalisation of the Taxi industry.

3.4 A delay in payments for foreign membership to the Aviation Safety Organisation (ASO), International Civil Aviation Organisation and Commission and Cospas-Sarsat contributed to the slower than planned spending.
3.5 The Committee noted that only 6 IPTN operating cities (City of Cape Town, Johannesburg, Tshwane, Ekurhuleni, Nelson Mandela Bay, George) reported on the number of average weekday passenger trips.

3.6 The Committee noted that a total of nine (9) new trains were provisionally accepted during the quarter under review in the Rolling Stock Fleet Renewal Programme.

The Department was asked why it did not focus on the improvement of passenger capacity as opposed to the number of trainsets.
There was also a concern raised that despite the amount spent under the Rail Transport programme, there remained several rail corridors that were not running trains to transport passengers.

6 372 3.7 The implementation of Scholar Transport remains a concern to the Committee, but it did not seem to be a priority in the Department.
3.8 Noting the majority of the underspent was linked to less travel due to COVID-19 restrictions, the Department was asked whether future budgets will take into consideration that this will continue as a long-term effect on operations and conversely the budget will continue to be affected.

3.9 The slow filling of vacancies remained a concern and the Department was asked whether it assessed the impact of the slow filling of vacancies and how this will affect service delivery.

4.
4.

COMMITTEE RECOMMENDATIONS The Committee recommends that the Minister ensure that: 4.1 The Department provides detailed reasons for the underspending and to indicate whether it assessed the impact of the slow filling of vacancies on service delivery.

The Department should also indicate whether it has put measures in place to curb the slow filling of vacant posts.
4.2 The Department explains why it does not seem to have found mechanisms to address the repeat of lower than projected spending on the Taxi Recapitalisation Programme, Public Transport monitoring programme and Shova Kalula programme.
4.3 The Department provides the following information to the Committee: 4.3.1 Timeframes for the migration of freight from road to rail; 4.3.2 Detailed information on the corporatisation of Transnet National Ports Authority, the Operation Phakisa Oceans Economy Three-Foot Plan, and the Memorandum of Agreement between municipalities and SANRAL on the Integrated Single Ticketing System; 4.3.3 Updates on the Administrative Adjudication of Road Traffic Offences (AARTO) Act project roll-out; 4.3.4 Feedback from National Treasury on the proposed integration of Road Traffic Law Enforcement entities; 7 373 4.3.5 An update on the implementation of the Gauteng Freeway Improvement Project (GFIP).
The Economic Freedom Fighters (EFF) abstained from the adoption of the report.

Report to be considered.

8 374 16.


Budgetary Review and Recommendation Report of the Portfolio Committee on Public Enterprises, dated 24 November 2021 The Portfolio Committee on Public Enterprises (hereinafter referred to as the Committee), having considered the performance of the Department of Public Enterprises for the 2020/21 financial year, reports as follows: 1 INTRODUCTION 1.1 Purpose of the BRRR In terms of Section 5 of the Money Bills Amendment Procedure and Related Matters Act, No.
9 of 2009, the National Assembly, through its Committees, must annually compile the Budgetary Review and Recommendation Reports (BRRRs) that assess the service delivery performance of departments given available resources.

Committees are also expected to provide an assessment of the effectiveness and efficiency of the Department’s use of available resources, and may include recommendations on the forward use of resources.
1.2 The Role and Mandate of Committee The mandate of the Committee is to consider legislation referred to it; exercise oversight over the Department and the seven State-Owned Companies (SOCs) that report to it; consider international agreements referred to it; consider the budget vote of the Department of Public Enterprises and its entities; facilitate public participation in its processes; and to consider all other matters referred to it in terms of legislation and the rules of the National Assembly.
1.3 Description of Core Functions of the Department The Department of Public Enterprises is the shareholder representative for government on the State-Owned Companies in its portfolio.
The Department’s mandate is to fulfil oversight responsibilities at these State-Owned Companies to ensure that they contribute 1 375 to the realisation of government’s strategic objectives, as articulated in the National Development Plan (NDP), the Medium-Term Strategic Framework (MTSF), the New Growth Path (NGP) and the Industrial Policy Action Plan (IPAP).

State-Owned Companies are crucial to driving the state’s strategic objectives of creating jobs, and enhancing equity and transformation.
The Department does not directly execute programmes but seeks to use state ownership in the economy to support the achievement of these objectives.

It is within this context that the BRRR concerning the Department of Public Enterprises by the Portfolio Committee on Public Enterprises is presented.

1.4 Method This report is a culmination of the Committee’s engagement and interactions with the Department and the State-Owned Companies that report to it.
This entailed a very intense and thorough analysis of the strategy and operations of the Department and its entities through briefings, oversight visits and interaction with relevant stakeholders.
These included a briefing from the Department of Public Enterprises on its annual report and a briefing from the Office of the Auditor-General of South Africa (AGSA) on the audit outcomes of the Department and its entities on 10 and 17 November 2021, and deliberations on the analysis done by Parliament support staff on the financial and non- financial performance of the Department and its entities.

The report only covers the Department of Public Enterprises, Eskom, Transnet and Safcol.
This was because Denel, South African Airways, South African Express Airways and Alexkor had not yet tabled their annual report and financial statements.
1.5 Outline of the Contents of the Report The Budgetary Review and Recommendation Report (BRRR) of the Committee contains the following: § Overview of the key relevant policy focus areas; § Summary of previous key financial performance recommendations of the Committee; § Overview and assessment of financial performance; § Overview and assessment of service delivery performance; 2 376 § Committee recommendations.
2 OVERVIEW OF THE POLICY ENVIRONMENT According to the IMF forecasts, Sub-Saharan Africa is set to grow by 3.7 percent in 2021 and 3.8 percent in 2022.

This rebound is most welcome and largely results from a sharp improvement in global trade and commodity prices.

Favourable harvests have also helped lift agricultural production.

But the recovery is expected to be slower than in advanced economies, leading to a widening rift in incomes.
This divergence is expected to persist through the medium term—partly reflecting different access to vaccines, but also stark differences in the availability of policy support.

The outlook remains extremely uncertain, and risks are tilted to the downside.

In particular, the recovery depends on the path of the global pandemic and the regional vaccination effort, and is also vulnerable to disruptions in global activity and financial markets.
The economic reconstruction and recovery plan states the following.

The challenges in the South African economy have overtime been worsened by sustained low levels of investment and growth.

The economy has also experienced a series of downgrades, including state-owned enterprises (SOEs).

This has impacted adversely on the cost of borrowing.

In addition, low levels of growth and challenges related to revenue leakages have also impacted negatively on resource mobilisation.
These challenges, coupled with an increasing budget deficit and a rising stock of debt has constrained the fiscal space.

To break the stranglehold of these challenges and other economic constraints, requires a plan that will help us take advantage of the opportunities presented by the global economy that is also on the mend.

The outbreak of the Covid-19 pandemic in March 2020 found a vulnerable South African economy.
In fact, at the time pandemic reached our shores, the South African economy had experienced two consecutive quarters of a recession.

As a result, the Covid-19 pandemic deepened the economic crisis.

Many people lost their jobs, many have gone without income for extended periods, and many are going hungry every day.

Inequality is expected to widen and poverty to deepen.

Given the extent of the devastation, the economic response required should match or even surpass the scale of the disruption caused.
3 377 The stagnation of the economy for a long period coupled with the Covid-19 crisis has also led to low levels of capacity utilization in the various sectors of the South African economy.

This trend is projected to continue; painting a dire picture for gross fixed capital formation.

A significant reduction in the gross fixed capital formation variable is a troubling development; given that this variable is critical in sustaining and growing the productive base of the economy.
This trend is anticipated to be reversed through the economic reconstruction and recovery plan via infrastructure development.

In his State of the Nation Address held on the 11 February 2021, the President outlined the overriding priorities for 2021 as follows: defeat the coronavirus pandemic, accelerate economic recovery, implement economic reforms to create sustainable jobs and drive inclusive growth and fight corruption and strengthen the State.
Since the launch of the economic reconstruction and recovery plan, government has focused on four priority interventions: • a massive rollout of infrastructure throughout the country, • a massive increase in local production, • an employment stimulus to create jobs and support livelihoods, and • the rapid expansion of our energy generation capacity.

Government announced that it would be embarking on a massive rollout of infrastructure throughout the country.
Government knew in order to achieve this objective it would need to steadily rebuild technical skills within government to prepare and manage large infrastructure projects.

Government now developed an infrastructure investment project pipeline worth R340 billion in network industries such as energy, water, transport and telecommunications.

The fourth priority intervention of the Economic Reconstruction and Recovery Plan is to rapidly expand energy generation capacity.
Restoring Eskom to operational and financial health and accelerating its restructuring process is central to this objective.

Eskom has been restructured into three separate entities for generation, transmission and distribution.

This will lay the foundations for an efficient, modern and competitive energy system.

Eskom is making substantial progress with its intensive maintenance and operational excellence programmes to improve the reliability of its coal fleet.
Government working closely with Eskom on proposals to improve its financial position, manage its debt and reduce its dependence on the fiscus.

This 4 378 requires a review of the tariff path to ensure that it reflects all reasonable costs and measures to resolve the problem of municipal debt.
In December 2020, government and its social partners signed the historic Eskom Social Compact, which outlines the necessary actions that must be taken, collectively and as individual constituencies, to meet the country’s energy needs now and into the future.

The Minister of Finance in his Medium Term Budget Policy Statement made several pronouncements with a direct impact on the operational environments of SOCs.

State-Owned Companies are intended to be important enablers of economic development.
Many SOCs, however, have been badly managed and have failed to deliver.

In many instances they have also been devastated by state capture, making them increasingly reliant on government support.

Since 2013, government directed more than R290 billion to bailout state-owned companies, at the expense of important social expenditure.

Going forward, the restructuring of state-owned companies, informed by an assessment of their strategic relevance, is a priority.
In this MTBPS, no additional funding is provided for state-owned companies.

The exception to this is where guarantees have been called by creditors and conditions have been met by the SOC in question, within the context of their strategic importance.

Government must be prepared to consolidate some of our state-owned entities and let go of those that are no longer considered strategically relevant.
2.1 Key Policy Focus for the Department of Public Enterprises The Department of Public Enterprises is government’s shareholder representative for the state‐ owned companies in its portfolio.

The department’s mandate is to fulfil oversight responsibilities at these companies to ensure that they contribute to the realisation of government’s strategic objectives, as articulated in the National Development Plan, government’s 2019‐2024 medium‐term strategic framework and the reimagined industrial strategy.
State‐owned companies are crucial to driving the state’s strategic objectives of creating jobs, and enhancing equity and transformation.

The department does not directly execute programmes but seeks to use state ownership in the economy to support the achievement of these objectives.
5 379 3 SUMMARY OF PREVIOUS YEAR’S BRRR RECOMMENDATIONS MADE BY THE COMMITTEE 3.1 The Committee recommended that the Minister of Public Enterprises should: 3.1.1 Ensure that shareholder compacts are concluded by the third quarter of the year preceding the year covered by the compact.

3.1.2 Ensure that the Accounting Officer improves controls and systems to ensure the department achieves an unqualified audit outcome and matters of emphasis from each year must be addressed in the subsequent year.
3.1.3 Ensure that SOCs protect jobs in particular highly advanced technical skills to advance the manufacturing capability of the state.

SOCs should invest in labour intensive infrastructure programmes to create employment.

3.1.4 Ensure that the follows through on cases opened with South African Police Services on corruption allegations at Alexkor and that the recommendations of Gobodo Forensic report are implemented.
3.1.5 Ensure that the R10.5 billion allocated to SAA is used for the intended purpose, particularly the payment of severance packages and legal obligations.

3.1.6 Ensure that the restructuring of Eskom is completed within the set timeframes and maintenance of power stations is done on time.

3.1.7 Outline the impact of the Section 34 Ministerial Determination on Eskom to the Committee on the current generation ability of Eskom.
3.1.8 Introduce specific targets for costs containment and revenue “output” generation in the Shareholder Compacts.

3.1.9 Review SOC Business Model to enhance sustainability of the companies, which is revenue enhancement and cost containment.

3.1.10 Ensure that SOCs invest in Research & Development to improve on innovation and creativity.

3.1.11 Align remuneration, performance and consequence management with remuneration guidelines.
3.1.12 Ensure the Department of Public Enterprises adhere to the Logical Planning Framework.

3.1.13 Enhance and streamline the DPE’s internal processes to ensure rapid response and timeous decision making in the department.

6 380 3.1.14 Focus on capacitating core technical functions, develop and enhance technical skills and ensure implementation of sound operational and systems engineering business processes to ensure effective technical oversight.
3.1.15 Ensure the implementation of a methodology and manner in which Boards are appointed to ensure independence and enable effective performance review with due consequence management.

3.1.16 The financial management and control structures and processes are such that accurate, timeous and reliable recording and reporting of all financial transactions takes place.

• That the appropriate financial management systems and controls are in place to ensure the effective management of the financial affairs.
• That the financial affairs and performance reported is acceptable in terms of the corporate plans and shareholder compacts.

• Significantly enhance reporting and accountability arrangements that facilitate an appropriate oversight by the Department; and • Urgently develop technical capacity within the Department to oversee its SOCs.
3.1.17 Provide the Committee with quarterly progress reports regarding the implementation of these recommendations, and 3.1.18 Provide the Committee with timeous updates in writing on developments and events that could potentially adversely affect SOCs or the public.

This information should be submitted to the Committee shortly after receiving the information or date of incident.
4 OVERVIEW AND ASSESSMENT OF FINANCIAL PERFORMANCE The Department of Public Enterprises spent 99.9 per cent of its budget in the 2020/21 financial year and received an unqualified audit opinion with an emphasis of matter on its irregular expenditure.

4.1.

Table 1.
Overview of Vote allocation and spending (2016/17 to 2020/21) R’million Table 1: Comparative Budget Allocation 7 381 Expenditure Performance For the Five Year Department of Public Period Reviewed Enterprises (R'm) Allocation Actual Expenditure Percentage Spent Percentage Unspent 2016/17 2017/18 268.0 253.8 94.7 5.3 266.7 250.4 93.9 6.1 2018/1 2019/2 2020/2 9 0 1 6 522.9 56 883.0 77 606.9 6 474.8 56 846.4 77 503.4 99.3 99.9 99.9 0.7 0.1 0.1 Source: Department of Public Enterprises (2021) As shown in the table 1 above, for the 2016/17 and 2017/18 financial years, the DPE underspent by more than 5 per cent.
The reason given for the underspending in this financial year was mainly due to delays in filling vacant posts and delays in projects that had not commenced and other projects that still needed to be completed.

However, in the 2018/19 and 2019/20 financial years, the Department spent the majority of the allocation on Payments for financial assets in support of the state-owned companies.

This also occurred in the 2020/21 financial year.


The Department had an original appropriated total budget of R37.8 billion in February 2020 for the 2020/21 financial year.

However, in the adjusted estimates of national expenditure tabled in October 2020, the Department received a further R39.7 billion, with the total appropriation of R77.6 billion.

This amount was mainly for Payments for financial assets as transfers to the state-owned companies (SOCs) amounted to R77.5 billion.
The balance of R258 million was used by the Department for its operations.

The transfers to entities included the following: • • • • R56 billion for Eskom for settlement of government guaranteed debts.

R20.7 billion for SAA for settlement of government guaranteed debts and implementation of the business rescue plan.

R567 million for Denel in aid of recapitalisation.

R164 million for South African Express Airways to eliminate government’s contingent liability exposure.
8 382 4.2 Financial performance 2020/21 During the 2020/21 financial year, the Department spent its 2020/21 budget in the following manner: Table 2.
Quarterly Expenditure for the 2020/21 financial year Programme (R'm) 1st 2nd 3rd 4th Appropriat Appropriati 2020/21 Adjusted Quarter Quarter Quarter Quarter ed Budget on Programme 1: Administration and Corporate Management 29.5 59.1 87.6 118.4 164.3 142.5 Programme 2: SOCs Governance Assurance and Performance 6.9 16.3 25.1 37.2 54.6 45.5 Programme 3: Business Enhancement, Transformation and Industrialisation 1 089.9 16 696.4 27 479.5 77 347.8 37 630.4 77 419.0 Total 1 126.3 16 771.8 27 592.2 77 503.4 37 849.4 77 606.9 Percentage of Budget Spent 3.0% 44.4% 35.6% 99.9% Source: National Treasury (2020-2021) SCOA Reports As seen in table 2 above, in the first quarter, April to June 2020, the Department spent R1.126 billion or 3.0 per cent of the R37.849 billion budget originally Appropriated for the 2020/21 financial year.
The Department spent 85.3 per cent less than the R7.6 billion it projected to spend.

The slower than projected spending was planned disbursements to Eskom and Denel that did not materialise.
Eskom had enough cash to fund its obligations during the period, while Denel did not have debt payments due during the period for funds to be realised, as specified as a condition of the allocation that the money should be used to pay government guaranteed debt.1 1 National Treasury (2020b) 9 383 The majority of the Department’s operational budget was spent on Compensation of employees and Goods and services.
Of the R197.1 million budgeted for compensation of employees, R36.2 million or 18.4 per cent was spent.

An amount of R108.7 million was allocated for Goods and services, where R17.3 million or 15.9 per cent was spent in the first quarter.2 By the end of the second quarter, April to September 2020, the Department spent R16.8 billion or 44.4 per cent of the Appropriated Budget of R37.8 billion.
An amount of R59.1 million or 44.3 per cent of its budget was spent under Administration programme, while Programme 2: SOCs Governance Assurance and Performance spent R16.3 million mainly on Compensation of employees and Goods and services.

Programme 3: Business Enhancement, Transformation and Industrialisation programme spent R16.7 billion.
Spending in programme 3 was higher than expected due to an additional R6.6 billion expenditure on South African Airways towards settlement of guaranteed debt in September 2020.

An initial amount of R3.6 billion was paid in July 2020 from funds already appropriated.
For expenditure incurred in September, the Minister of Finance invoked section 6 of the Appropriation Act (07 of 2020) as amended by section 8 of the Adjustments Appropriation Act (11 of 2020) to allocate and authorise spending of R6.5 billion to settle debt that was due on 31 August 2020.

However, slow spending occurred on sub-programme Energy Resources as disbursement to Eskom did occur as planned.
As stated above, the Department received an additional allocation of R39.7 billion, with the total Appropriation of R77.6 billion.

The additional allocation was mainly for Payments for financial assets as transfers to the state-owned companies (SOCs) for settlement of government guaranteed debt and recapitalisation.

With an available budget of R77.6 billion, the Department spent R27.6 billion or 35.6 per cent by the end of the third quarter of 2020/21.
The bulk of this amount was spent on Payments for Financial Assets.

The Administration programme spent 61.5 per cent of its budget by the third quarter of the 2020/21 financial year amounting to R87.6 million, mostly on Compensation of employees and Goods and services.

Actual expenditure to 2 Ibid 10 384 the end of December 2020 for Programme 2: SOC Governance Assurance and Performance amounted to R25.1 million of the available budget of R45.5 million or 55.2 per cent of the budget has been spent.
The Business Enhancement, Transformation and Industrialisation programme had an adjusted budget of R77.4 billion and had spent R27.5 million or 35.5 per cent by the end of December 2020.

By the end of the third quarter, actual expenditure was slower than projected on Compensation of Employees and Goods and services due to vacant posts and delays in the commencement of planned projects.
The Department spent R106.8 million or 57.7 per cent of the R185.2 million Compensation of employees budget, while R54.3 million or 70.8 per cent of the R76.7 million Goods and services budget was spent by the end of December 2020.

During the Adjustment Budget the Department effected shifts amounting to R4.3 million and virements amounting to R17.6 billion.

The virement of R17.6 billion was for a reallocation of funds incorrectly allocated in the 2019 estimates of national expenditure.
The Department spent R77.5 billion or 99.9 per cent of the R77.6 billion appropriated budget by the end of the fourth quarter of the 2020/21 financial year.

Administration spent R118.4 million or 83.1 per cent of the R142.5 million budget, while Programme 2 spent R37.2 million or 81.9 per cent of the R45.5 million budget by the end of the financial year.

Programme 3 spent R74.7 billion or 96.4 per cent of the R77.4 billion budget for the programme.
The R2.7 billion for SAA subsidiaries was reported in the annual financial statements as a payable and was earmarked to be disbursed during the 2021/22 financial year.

The under expenditure of R103.5 million primarily relates to compensation of employees due to vacant posts and payments for financial assets which was as a result of unspent funds for SAX and SAA.
The Department spent R141.2 million or 76.6 per cent of the Compensation of employees budget while R71.8 million or 95.8 per cent of the Goods and services budget was spent by the end the financial year.

As stated above, the slow spending on Compensation of employees and Goods and Services was due to vacant posts and projects that could not commence during the year.
The Department had an official headcount of 214 posts but 11 385 only 170 posts were filled by 31 March 2021, with a vacancy rate of 20.6 per cent.

For the period ending 31 March 2021, the Department spent R410 000 on purchase of personal protective equipment for staff.
The Office of the Auditor-General of South Africa (AGSA) further stated that the differing views would result in a significant impact on the annual financial statements (AFS) and would result in significant restatement of prior years’ AFS should the AGSA be correct in their interpretation, as well as significant reputational damage on many parties, but especially Transnet due to debt listing requirements by various stock exchanges.
The matter was still under discussion between the parties, thus delaying the tabling of the entity’s AFS.3 The matter was subsequently resolved and the entity was able to table its Annual Report and AFS on 03 November 2021 to Parliament.

For the 2020/21 financial year, the entity received a qualified audit opinion as the auditors were unable to obtain sufficient audit evidence that irregular expenditure was complete and accurate.
This is the fourth consecutive year that the entity received this audit opinion.

Irregular expenditure was stated at R104 billion, down on the R131 billion reported in the previous financial year.

Transnet also received findings relating to compliance with laws and regulations, internal control deficiencies as well as material irregularities.4 Transnet businesses were hard hit by the impact of the COVID-19 pandemic lockdown restrictions on rail, port and pipeline volumes.
Volume output was also adversely impacted by regulations that prohibited mines from operating at full capacity in the interest of protecting the safety of employees.

Revenue decreased by 10.5 per cent to R67.3 billion while net operating expenses increased by 16.2 per cent to R47.8 billion mainly due to third party claims and environmental provisions.

The entity’s net loss for the period increased to R8.4 billion from the net loss of R2.9 billion in the previous financial year.
The entity focused on resolving irregular expenditure, strengthening governance systems, improving and simplifying procurement policies and maintenance.

3 Gordhan (2021a) 4 Ibid.


12 386 The entity is also dealing with aging infrastructure and theft of cables of its railway system.5 4.3 South African Express Airways The Minister of Public Enterprises submitted a letter to Parliament on 7 October 2021, stating that the entity would not be able to finalise and submit the annual report within the prescribed timelines.
The Minister stated that, “SA Express was placed under provisional liquidation and the liquidator is in the process of finding a buyer for the airline.
The airline will therefore not prepare the 2020/21 Annual Report and Annual Financial Statements as the contracts of employees who would have prepared the reports were suspended prior to the year-end audit.”6 South African Express (SAX) airways was placed under Business Rescue in February 2020 due to financial pressures that resulted from poor management and state capture.

The business rescue practitioners applied to the High Court for the provisional liquidation of the airline as it had run out of funds.
The High Court placed SA Express under provisional liquidation on 28 April 2020.

The court granted an extension for the provisional liquidation process on 28 July 2021.
The potential buyer submitted a revised offer, currently awaiting a bank guarantee to formalise the purchase process.7 The National Union of Metal Workers of South Africa (NUMSA) and the South African Cabin Crew Association (SACCA) have gone to the Constitutional Court to challenge the liquidation of SA Express without the involvement of Parliament in the process.
The Department is responding the application.8 4.4 South African Airways The Minister of Public Enterprises submitted a letter to Parliament on the 07 October 2021, stating that the entity would not be able to finalise and submit the annual report 5 Ibid.

6 Gordhan (2021b) 7 Department of Public Enterprises (2021a) 8 Ibid.

13 387 within the prescribed timelines.


In the letter the Minister stated the following, “the company was placed in a business rescue included the transfer of the concurrent liabilities, lessor liabilities and lender liabilities to a Receiver vehicle.

SAA achieved solvency and liquidity status that is critical to a business to exit business rescue based on the Receivership.
Various accounting entries that relate to business rescue had to be considered and processed after the business rescue practitioners had exited the business.
The audit will be finalised once the airline fully recommences operations and the annual report and annual financial statements will thereafter be tabled.”9 On 11 June 2021, the Minister announced that the Takatso Consortium, comprising Harith General Partners, a leading investor in African infrastructure and airports, and airline management firm, Global Airways, was selected as the preferred Strategic Equity Partner (SEP) for South African Airways.
The airline resumed flights on 23 September 2021 after it suspended its flights in March 2020 when South Africa instituted a lockdown in response to the COVID-19 pandemic.

The airline renewed the Air Operator Certificate, while the cabin crew and pilots were retrained.

The airline has an interim board and management leading the organisation, while the due diligence with regards to the sale of the airline is being concluded.
4.5 Department of Public Enterprises’ financial performance for 2021/22 The Department had an appropriated total budget of R36.3 billion of which R20.1 billion or 55.4 per cent was spent for the period April to June 2021.10 This is higher than the projected expenditure by 0.1 per cent or R27.9 million for the first quarter.

This was mainly due a payment of R45 million to settle interest that was due for Denel under the Domestic Medium Term Note which is government guaranteed.
The entity is in financial distress and was not able to settle the interest that was due in June 2021 and hence requested government to settle the debt to avoid a default.11 9 Gordhan (2021b) 10 National Treasury (2020) 11 National Treasury (2021c) 14 388 The majority of the Department’s operational budget was spent on Compensation of employees and Goods and services.

Of the R176.0 million budgeted for Compensation of employees, R34.5 million or 19.6 per cent has been spent.
An amount of R110.2 million has been allocated for Goods and services, where R15.1 million or 13.7 per cent was spent in the first quarter.
Expenditure was slow on compensation of employees and good and services due to vacant posts and invoices received from the Department of Public Works and Infrastructure for office accommodation and State Information Technology Agency (SITA) charges.12 The programme 1: Administration has an appropriated budget of R159.8 million of which R26.7 million or 16.7 per cent has been spent by the first quarter.
The low spending was due to vacant posts and outstanding invoices for office accommodation and SITA charges.13 Programme 2: State-Owned Companies Governance Assurance and Performance has a budget of R61.7 million of which R12.3 million or 19.9 per cent of the budget was spent.
The main cost driver within the programme were Compensation of employees, goods and services as well as transfers and subsidies due to payment of leave gratuities.14 Programme 3: Business Enhancement, Transformation and Industrialisation has a budget of R36.1 billion of which R20.1 billion or 55.6 per cent of the budget was spent by the end of June 2021.
The main cost drivers in the programme are Payment for Financial Assets for transfers to state-owned companies.15 As at 30 June 2021, the Department had a headcount of 172, which translates to a vacancy rate of 17.7 per cent.

Spending on compensation of employees was R10.1 million or 22.6 per cent less than projected.

The underspending is due to unfilled posts.16 4.6 MTEF financial allocations for 2022/23 12 Ibid.

13 Ibid.

14 Ibid.
13 Ibid.

14 Ibid.

15 National Treasury (2021c) 16 National Treasury (2021c) 15 389 This section looks at the medium term expenditure framework (MTEF) for the 2022/23 financial year.

Table 3.
Current Estimates for the 2022/23 R’million Programme Allocation (R'm) 2021/22 2022/23 Variance Variance % Programme 1: Administration 159.8 158.7 -1.1 -0.7% Programme 2: State-Owned Companies Governance Assurance and Performance Programme 3: Business Enhancement, Transformation and Industrialisation 61.7 67.7 6.0 9.7% 36 070.3 1 845.2 -34 225.1 -94.9% Total 36 291.8 2 071.6 34 220.2 -94.3% Source: National Treasury (2021) Table 3 illustrates the projected allocation for the 2022/23 financial year amounts to R2.1 billion, a R34.2 billion or 94.3 per cent decrease.
Programme 1: Administration decreased by R1.1 million to R158.7 million in the 2022/23 financial year.

Programme 2: State-Owned Companies Governance Assurance and Performance will increase by 9.7 per cent from R61.7 million in 2021/22 to R67.7 million in 2022/23.
Programme 3: Business Enhancement, Transformation and Industrialisation sees the largest decrease of R34.2 billion to R2.1 billion in the 2022/23 financial year, mostly to decreases in Payments for financial assets as the disbursements to the state-owned companies comes to an end.
An amount of R1.8 billion has been allocated to South African Airways to settle government guaranteed debt and interest.17 This allocation is subject to confirmation and approval by the Minister of Finance during the National Budget in February 2022.

4.7 Concluding comments on financial performance 17 National Treasury (2021) 16 390 The Department is financially sound as exhibited by achieving unqualified audit opinions over the years, although findings were found on its irregular expenditure.
The Department’s budget has been dominated by transfers to the SOCs, which has skewed the Department’s budget.

The Department has spent 99.9 per cent of its budget.

However, the underspending on its operational budget was due to vacant posts and delays in the commencement of planned projects.

The Department should try to correct this trend by looking at its planning mechanisms.

The vacancy rate of 21 percent is a cause for concern as it is way above the treasury benchmark of 10 per cent.
Performance against expenditure is addressed in Section 6 of the report, however, the Department will have to strengthen its oversight of all its entities and engage on the best way for the entities to achieve financial sustainability.

Eskom’s finances should be closely monitored to ensure that the money it is receiving from government is used to ensure the future sustainability of the company.
The Department will have to maintain close oversight over Transnet’s investment in its aging infrastructure and to reduce the effect that theft has on its railway networks.

The future role of Alexkor and SAFCOL will have to be confirmed with the continued stabilisation of their long-term planning.

Government has to take a decision on the fate of Denel, which requires funding to support its restructuring process.
The Department needs to conclude the due diligence on the Strategic Equity Partner for SAA and finalise the Sale and Purchase agreement.

Similarly, the Department needs to oversee the successful sale of SAX.

The Department is faced with entities that are facing financial instability and governance challenges.

The Department will have to strengthen its oversight and monitoring of these entities and engage National Treasury on ways to overcome the financial instability of these entities.
The Department must provide the appropriate support to the SOCs to overcome the audit findings of 2020/21 in preparation for the 2021/22 financial audit.

Corrective measures and plans need to be put in place to address the audit findings.

The Department also needs to ensure that processes and procedures are put in place to address entities’ weaknesses timeously, effectively and efficiently before these issues escalate and become problems.
17 391 18 392 5 OVERVIEW AND ASSESSMENT OF SERVICE DELIVERY PERFORMANCE 5.1 Service Delivery Performance for 2020/21 The Department of Public Enterprises provides a distinct mandate of SOCs’ shareholder oversight on behalf of the State.
The department’s mandate is to fulfil oversight responsibilities at these State-Owned Companies to ensure that they contribute to the realisation of government’s strategic objectives, as articulated in the National Development Plan (NDP), the Medium-Term Strategic Framework (MTSF), the New Growth Path (NGP) and the Industrial Policy Action Plan (IPAP).

State-Owned Companies are crucial in driving the State’s strategic objectives of creating jobs, enhancing equity and transformation.
The department’s contribution towards government priorities and outcomes is achieved through three programmes identified in the organisational structure namely: administration, state-owned companies’ governance assurance and performance and business enhancement, transformation and industrialisation.

The section below discusses programme performance.


5.2 Performance Information by Programme 5.2.1 Performance analysis18 The Department is primarily contributing to creating an efficient, competitive and responsive economic infrastructure network (Outcome 6) of the Medium Term Strategic Framework (MTSF).
Furthermore, the Department, through the activities of its SOCs, contributes to other outcomes such as decent employment through inclusive growth (Outcome 4), a skilled and capable workforce to support an inclusive growth path (Outcome 5) and a vibrant, equitable and sustainable rural communities with food security for all (Outcome 7).

The Department, over the medium term will continue to oversee its seven SOCs.
Furthermore, over the medium term, the department will continue to focus on enhancing 18 Department of Public Enterprises (2020a) This section comes from this report.

19 393 reforms to stabilise SOCs’ and strengthening its oversight capacity to ensure that the SOCs in its portfolio are sustainable and contribute to investment in key infrastructure.19 5.3 Programme and sub-programme performance20 The Department has three programmes.

The performance against targets are given below.


5.3.1 Programme 1: Administration and Corporate Management The purpose of this programme is to provide strategic management and support services to the Department.

The programme includes the Office of the Director-General/Management.
The programme is currently made up of the following sub-programmes: Management; Security and Facilities Management; Information Management and Technology; Office of the Chief Financial Officer; Human Resources; Communications; Strategic Management; and Internal Audit.
Table 4: Programme 1 Performance Achievement Outcome Output Indicator Annual Target Actual Achievement Promote alignment Number of training 15 Achieved and efficiency across interventions Institutional Model provided (WSP) Improved ICT and Development of the Development of the Achieved business alignment DPE Enterprise Architecture and enhanced Business Masterplan oversight Architecture (EA) Source: DPE Annual Report 2020/2021 The Department did not revise the above indicators.
Both indicators for the programme were achieved.

19 National Treasury (2020) 20 Department of Public Enterprises (2020a) This section comes from this plan.

20 394 The Department’s core functions require significant administrative support, which programme 1: Administration does.

The programme spent R118.4 million or 83.1 per cent against a budget of R142.5 million for the 2020/21 financial year.

The programme under spent by R24 million which was mainly due to vacant posts within the programme.
The primary cost drivers under goods and services include operating lease, property payments, computer services and audit fees.

5.3.2 Programme 2: State-Owned Companies Governance Assurance and Performance The purpose of this programme is to provide and enforce SOCs’ governance, legal assurance, financial and non-financial performance monitoring, evaluation and reporting systems, in support of the Shareholder, and to ensure alignment with Government’s priorities.
Table 5: Programme 2 Performance Achievement Outcome Output Indicator Annual Target Actual Achievement Sub-programme: Governance, Legal Assurance, Risk Profiling and Mitigation Strengthen the Annual assessment of Annual Board Not Achieved governance system of independent Board Evaluation SOCs and promote Performance Report institutional alignment in the execution of the oversight function Strengthen shareholder SOC MOIs Revised MOI Not achieved oversight through the standardised approved Memorandum of Incorporation (MOI) Sub-programme: Financial Assessment and Investment Support Number of SOC 20 20 quarterly financial 21 395 Improved independent reviews and reports financial sustainability produced of SOCs Number of corporate 5 4 plans reviewed Alexkor corporate plans was not reviewed Number of 2 2 consolidated progress report on SOCs’ audit findings Standardised SOCs Dividend Achieved methodology and Policy frequency of payment Framework of dividend developed Source: DPE Annual Report 2020/2021 Two additional performance targets were added in the revised APP for the 2020/21 financial year.
Table 6.
Programme 2 Revised Performance Achievement Revised Outcome Output Indicator Annual Target Actual APP Achievement Sub-programme: Governance, Legal Assurance, Risk Profiling and Mitigation Added Improved Number of Implementation Achieved governance and identified “High of the Risk accountability Risk” SOE Integrity governance Management systems reviewed Framework and (RIMF) recommendations implemented 22 396 Added Presidential State- Establishment of Achieved Owned Enterprise PSEC through Council (PSEC) Presidency established Source: DPE (Revised) Annual Performance Plan 2020/2021 Of the eight performance indicators, three were not achieved.
The programme has the smallest budget of the three programmes of the Department, expenditure amounting to R37.3 million for the 2020/21 financial year.

This amounted to 81.9 per cent of the R45.5 million budget appropriated for the year.

The programme under spent by R8.2 million.

The majority of the budget goes to compensation of employees, with the balance going to goods and services.
Spending on goods and services was mainly on payments for legal services and the development of the framework on SOC Risk and Integrity.

5.3.3 Programme 3: Business Enhancement and Industrialisation The purpose of the programme is to provide sector oversight to ensure that state-owned companies contribute to the advancement of industrialisation, transformation, intergovernmental relations and international collaboration services.
The programme will also support the shareholder in strategically positioning and enhancing the operations of state-owned companies.21 Through this programme, the Department contributes to the enhancement of the performance of SOCs on an ongoing basis by:22 • Conducting reviews, research and modelling of pipeline and new business enhancement opportunities within SOCs; • Assessing operations of SOCs and developing mitigation instruments in conjunction with policy departments, regulatory bodies and industry; and 21 Department of Public Enterprises (2020a) 22 Ibid 23 397 • Conducting research, modelling job creation and transforming instruments for SOCs to inform compact alignment imperatives, promote SOCs’ contribution to inclusive economic growth, unlock bottlenecks affecting SOCs and inform evidence-based policy formulation.
Table 7: Programme 3 Performance Achievement Outcome Output Indicators Annual Target Actual Achievement Sub programme: Business Enhancement Services Increase the Increase % spend on Four assessment Achieved contribution of SOCs to SOC’s local content reports on SOC’s 75% support the spend on local content transformation of South Increase % spend on Four assessment report Achieved African economy SOC’s Preferential on SOCs 75% spend on Procurement Preferential Procurement and Broad-Based Back Economic Empowerment (BBBEE) level 6 compliance % increase in SOC CSI Four assessment Achieved programme allocation reports on 0.2% spend on SOC’s CSI programme Support the Annual value of Four assessment Achieved development of small, enterprise reports on SOCs’ 1% medium and micro development Total Measured enterprises (SMMEs) contributions Procurement Spend (TMPS) contribution Accelerate the Number of new 4 Assessment reports Achieved development of skills to learners enrolled into measuring SOCs’ 3% support the needs of the SOCs’ skills spend of leviable economy amount 24 398 development programmes Increase the SOCs’ implementation Report on alignment of Achieved contribution of SOCs to in line with the DPE two SOC Africa support the Africa Strategy market entry plans to transformation of South African economy Sub programme: Energy and Resources DPE’s Africa Strategy Number of 3 Shareholder Not achieved.
Improved governance and accountability Shareholder compacts compacts (2020/21) Alexkor and Eskom signed per year signed (Eskom, Shareholder (Eskom, Alexkor and Alexkor and SAFCOL) Compacts not signed SAFCOL) % of SOCs’ Operational SAFCOL’s increased Four progress report Achieved efficiency (Promote the revenue on SAFCOL’s operational excellence of SOCs) implementation of the Timbadola re- investment project Restructuring for Proposed shareholding Achieved Alexkor structure for Alexkor mining rights Eskom planned Four progress reports Achieved Capacity Adherence on Eskom’s delivery of (infrastructure/build infrastructure programme) programme Improve the Energy Maintenance of Four assessment Achieved Availability Factor security supply and reports of Eskom’s (EAF) to ensure prudent fleet performance constant supply for management generation fleet electricity Separate and unbundle Eskom to eliminate Implementation of the Two progress reports Achieved Eskom Special Paper on the status of the unbundling process 25 399 cross-subsidisation and improve efficiency Sub programme: Transport and Defence Improved governance Number of Two 2021/22 Not achieved.
and accountability Shareholder Compacts Shareholder Compacts No Shareholder signed annually signed (Transnet, Compacts signed (Transnet, SA Express, Denel) SAA and Denel) Promote operations Monitor Denel’s 4 assessment reports Not achieved, as at 30 efficiency contract execution to on Denel’s contract June 2020. increase cashflow execution to support Indicator revised cashflow targets Increase access to Alignment of Transnet Inputs into the long- Not achieved as at 30 affordable and reliable Freight Rail (TFR) term rail strategy June 2020. transport system strategy with capacity Indicator revised.
plan Corporatise Transnet TNPA corporatisation Final report on the Not achieved, as at 30 National Ports Authority (NPA) corporatized NPA June 2020.

Indicator revised Improvement in General Efficient performance 4 assessment reports Not achieved, as at 30 Freight Business (GFB) in GFB corridor on the % increase in June 2020. volumes moved volumes rail volumes and Indicator removed.

annually.

(3 GFB corridors) i.e.

Natal corridor, Cape Corridor, South Corridor.


Rand/TKM Improved on rolling Assessment reports on 4 Assessment reports Not achieved, as at 30 stock (locomotives, kilometre track on kilometre track June 2020 wagons) reliability and maintained and rolling maintained and rolling Indicator revised infrastructure maintenance stock reliability stock reliability 26 400 % Increase in Port Assessment of port Report on the port Not achieved as at 20 Terminal Equipment terminal equipment equipment reliability.
June 2020. reliability Indicator revised Reliable, safe, effective, Assessment of Four assessment Not achieved, as at 30 fully integrated and interface on road, rail reports on the June 2020. economically and port systems improvement of land Indicator removed.
competitive land and marine (road, rail and port) system and marine interfaces Sub programme: Research and Economic Modelling Increase the Socio-economic One socio-economic Achieved contribution of SOCs to Impact Assessment impact assessment support the reports of SOC’s report of SAFCOL’s transformation of South selected capital selected capital African economy projects projects completed Number of industry Five industry specific Achieved specific research research conducted conducted Source: DPE Annual Report 2020/2021 Table 8.
Revised Programme 3 Performance Revised Outcome Output Indicators Annual Target Actual APP Achievement Sub programme: Business Enhancement Services Removed Reduce vulnerability Adaptation to Climate Change None to risks associated Climate Change Risk Report with climate change Impact Removed Transition to low SOCs’ Compile a None carbon economy by implementation of consolidated reducing emission the Paris Climate report on SOCs’ Agreement implementation of Climate 27 401 Change Mitigation Plans Sub programme: Energy and Resources Added Supply of energy Explore embedded Two progress Achieved secure generation (SSEG) reports on the options to augment additional generation capacity embedded by 1000MW by generation 2024 capacity added Added Implement Eskom Two progress Achieved Roadmap for reports on the reformed electricity implementation supply industry of the Eskom roadmap Sub programme: Transport and Defence Revised Improved Progress report on Four quarterly Achieved governance and implementation of progress reports accountability the strategic on the initiatives to implementation turnaround Denel of the strategic initiatives to turnaround Denel Revised Increase access to Progress reports on Four progress Not achieved affordable and rolling stock reports on rolling reliable transport expansion and stock expansion system update and upgrade Revised Final report on the Four quarterly Not achieved corporatisation of progress reports TNPA on the corporatisation of TNPA 28 402 Revised Increase access to Assessment reports Four assessment Not achieved affordable and on port equipment reports on port reliable transport reliability system equipment reliability Source: DPE (Revised) Annual Performance Plan 2020/2021 Of the revised performance targets, the Department achieved 16 of the 21 performance indicators.
Most of the targets not achieved is within sub-programme Transport and Defence relating to the revised performance indicators with respect to Transnet and Denel.

The shareholder compacts for Eskom, Alexkor, Denel and Transnet were not signed during the 2020/21 financial year.

The programme has an adjusted budget of R77.4 billion of which the Department spent R77.3 billion or 99.9 per cent, under spending by R71.2 million.
The majority of this was for Payments for financial assets as transfers to the entities: • Eskom received R56 billion for payment of government guaranteed debt; • SAA received R18 billion in support of the Business Rescue Plan and settlement of government guaranteed debt; • SA Express received R143.4 million for settlement of government guaranteed debt; • Denel received R576 million for settlement of debt and recapitalisation.
At the end of the financial year, an amount R2.7 billion for SAA subsidiaries although not physically paid, it is reported in the annual financial statements as a payable and was disbursed during the 2021/22 financial year.

5.4 Concluding Comments on Service Delivery Performance The Department achieved targets on most of its programmes but failed to achieve targets on sub-programmes energy and transport and defence.

Concluding shareholder compacts remain a challenge for the Department.
The shareholder compacts for Alexkor, Eskom, Transnet, SA Express, SAA and Denel were not concluded.

This makes it difficult for the Department to provide oversight to these entities as there are no agreeable terms set in order to monitor performance.
Most of the targets on Transnet were not achieved, this 29 403 included; alignment of the Transnet Freight Rail (TFR) strategy with the capacity plan, TNPA corporatisation, improvement of General Freight Business (GFB) volumes moved and improved rolling stock (locomotives, wagons) reliability and infrastructure maintenance, assessment of port terminal equipment and assessment of interface on road, rail and port systems.

The Department revised its APP in June 2021.


This was done without providing the Committee with reasons for the revision.

The current MTSF is for the period 2019 to 2024.

The Department’s Strategic Plan covers the period 2020/21 to 2024/25.

The reasons for the revisions to the SP and APP are not highlighted in the documents, nor are the revisions highlighted, as required by the Revised Framework for SP’s and APP’s to be presented in an Annexure.
This is in contravention of the guidelines given by the DPME.

6 SERVICE DELIVERY AND FINANCIAL ASSESSMENT The Department has spent 99.9% (R77.9 billion of R78 billion) of the final appropriation, of which R219.3 million is for departmental operations and R77.3 billion is the capital injection for SOCs.
Of the R77.3 billion that was allocated as payments for financial assets to the SOCs in respect of Government guaranteed debt and implementation of the business rescue plan, R74.5 billion has been disbursed to Eskom (R56 billion), SAA (R18.008 billion), SAX (R20 million) and DENEL (R576 million).

The R2.7 billion for SAA Subsidiaries is reported in the annual financial statements as a payable and will be disbursed during 2021/22 financial year.
The under expenditure of R103,5 million primarily relates to compensation to employees due to vacant posts and payments for financial assets which is as a result of unspent funds for SAX and SAA.

The spending under direct charges against the National Revenue Fund is 100% (R410.3 million of R143.4 million) of the final appropriation.

The actual expenditure of R410.3 million (R266.9 million and R143.4 million) is for settlement of the SAA and SAX Government-guaranteed debt obligations respectively.
The variance of R266 million is a result of Nedbank issuing a call on 7 January 2021 on the secured guarantee there were no funds allocated.

The payment was made from direct charges against the National Revenue Fund.

30 404 An amount of R2 million was shifted as virement within the vote from goods and services in Programme 1 to the same economic classification in Programme 3.
Subsequent to the budget reduction during the Special Budget Adjustment in 2020/21 financial year, Programme 3 experienced a shortfall of R2 million.

This emanated from a payment that was in respect of the restructuring of SAA.

There was an increase in foreign exchange rates, which resulted in an increase in the amount paid.

The Department did not incur any unauthorised expenditure.
The irregular expenditure of R32.5 million was incurred in the previous financial years and relates to material deficiencies in the appointment of a Service Provider.

The Department is in the process of implementing corrective measures, which includes legal and disciplinary actions.

The fruitless and wasteful expenditure of R1.7 million incurred in the previous financial years forms part of the irregular expenditure of R32.5 million as the two relate to the same matter.
Consequence management has been implemented against those implicated as a result of the conduct contributory to the financial loss.

The Department continues to implement control measures.

As well as monitor, detect and address irregular expenditure to ensure compliance with the Public Finance Management Act (PFMA, Act 1 of 1999 as amended).

The Department is in the process of reorganising its operations including enhancing the tools and data it uses to perform the oversight function.
Further, the portfolio of SOCs has been reduced with the provisional liquidation of SA Express and the pending conclusion of a SAA strategic equity partnership.

The SOE Bill, which must be concluded by the end of the 2021/22 financial year, will provide further clarity on the Government shareholder model, the institutional form, and the depth and breadth of oversight capabilities that the department should assemble.
7 CONCLUDING REMARKS The department continues to execute its mandate under a constrained environment.

The impact of COVID-19 is still felt in many sectors of the economy.

Though there is recovery in some areas there are still risks imposed by the uncertainty of this global pandemic.

State Owned Companies are also facing numerous challenges resulting from a downturn in the economy.

Downgrades in SOCs have impacted adversely on the cost of borrowing and their financial 31 405 sustainability.
Some of the recommendations made by the ratings includes implementing structural reforms which this government has prioritised for the year under review.

It is critical the department is at the forefront of the implementation of the economic reconstruction and the recovery plan which is focused on four priority interventions.

The department should attract critical skills to monitor the implementation of the plan in SOCs.
Government acknowledges that restoring Eskom to operation and financial health and accelerating its restructuring process is a central objective of the plan.

Eskom has been restructured into three separate entities for generation, transmission and distribution.

The restructuring of SOCs is a central theme in this year’s Medium Term Budget Statement.

The Committee will continue to monitor this environment.

Without Government support SOCs have to find ways of collecting revenue and being profitable.
There has been progress in debt trajectory in some of the SOCs whereby SOCs have lowered their debt levels.

The departmental portfolio is being reduced with the restructuring of SAA and liquidation of SAX.

The announcement on the corporatisation of the TNPA is also another milestone by government to implement economic reforms.

During the period under review annual reports of State Owned Companies were not submitted on time.

Alexkor, Denel, SAA and SAX could not submit their annual finance statements.
State-Owned Companies (SOC) experienced serious financial challenges in the period under review, they continue to be central to the South African economic landscape and their performance is critical in growing the competitiveness and positive trajectory of the economy.

Eskom, Transnet and Denel are custodians of the national electricity, national logistics, defence and aerospace manufacturing capabilities.
The poor SOC financial, commercial, and operational performance had a direct impact on the socio-economic deliverables of Government.

8 SUMMARY OF REPORTING REQUESTS The Auditor-General reported that the Department’s achieved an unqualified audit with findings.

Therefore, there are no reporting requests relating to the Department.
9 RECOMMENDATIONS The Committee recommends that the Minister of Public Enterprises should: 32 406 9.1.1 Ensure that shareholder compacts are concluded by the third quarter of the year preceding the year covered by the compact.

These compacts are important indicators for performance of the entities and can only be concluded upon the stabilisation of the entities.
9.1.2 Ensure that the Accounting Officer improves controls and systems to ensure the department achieves an unqualified audit outcome and matters of emphasis from each year must be addressed in the subsequent year.

9.1.3 Ensure that the annual financial statements of state-owned companies are submitted on time.

9.1.4 Ensure that findings on the Department and in SOCs by the Auditor-General of South Africa are addressed.

Ensure that Eskom is audited by AGSA for this financial year.
9.1.5 Appoint qualified and competent board audit and risk committee, the internal audit function in the Department and State Owned Companies to respond better to audit outcomes in the line with the provisions of the Public Finance Management Act.

9.1.6 Institute consequence management for executive and management who deliberately or negligently ignore their duties and contravene legislation.
9.1.7 Ensure the implementation of proactive lifestyle audits and reviews of conflicts of interest based on risk analysis in all SOCs.

9.1.8 Update the Committee on a quarterly basis on the development of Shareholder Management Bill.

9.1.9 Present the Committee with the conclusion of strategic equity partnerships and oversight plans for SAA.
9.1.10 Present the Committee with a progress report on the SOC restructuring process and progress updates on the unbundling of Eskom into three entities, namely Generation, Transmission and Distribution.

9.1.11 Present a model for SOC oversight per programme, with clear targets on monitoring, evaluations and reporting within this financial year.

9.1.12 Improve communication in SOCs in order to educate the public on the role of SOCs, their capabilities and their developmental role in the economy.
9.1.13 Provide the Committee with progress update on efforts to ensure Alexkor achieves its public and commercial mandate, especially addressing socio-economic outcomes of the Richtersveld and Alexandra Bay communities.

33 407 9.1.14 Ensure that the diversification strategy of Safcol is implemented and the company expand its commercial and public mandate, and ensure that community land claims issues are resolved.
9.1.15 Ensure that the challenges facing Denel are addressed immediately, including its restructuring process and address the issue of payment of staff in these subsidiaries Denel Dynamics, Denel Land Systems, Denel Pretoria Metal Pressing, Denel Aeronautics and Denel Vehicle Systems.

9.1.16 Ensure that SOCs protect jobs in particular highly advanced technical skills to advance the manufacturing capability of the state.

SOCs should invest in labour intensive infrastructure programmes to create employment.
9.1.17 Ensure that the restructuring of Eskom is completed within the set timeframes and maintenance of power stations is done on time.

9.1.18 Ensure the Eskom updates the Committee on its maintenance programme and ensure uninterrupted and sustainable security of electricity supply.

9.1.19 Focus on capacitating core technical functions, develop and enhance technical skills and ensure implementation of sound operational and systems engineering business processes to ensure effective technical oversight.
9.1.20 Consider filling vacant posts within the Department to ensure capacity and capability to further execute important projects and programmes which were not realisable in this financial year due to lack human resources.

The department should keep the Committee informed on the progress in filling these important vacancies.
9.1.21 Ensure the implementation of a methodology and manner in which Boards are appointed to ensure independence and enable effective board performance review with due consequence management.

9.1.22 Ensure that the financial management and control structures and processes are such that accurate, timeous and reliable recording and reporting of all financial transactions takes place.
Furthermore: • That the appropriate financial management systems and controls are in place to ensure the effective management of the financial affairs.

• That the financial affairs and performance reported is acceptable in terms of the corporate plans and shareholder compacts.

• Significantly enhance reporting and accountability arrangements that facilitate an appropriate oversight by the Department; and 34 408 • Urgently develop technical capacity within the Department to oversee its SOCs.
9.1.23 Provide the Committee with quarterly progress reports regarding the implementation of these recommendations, and 9.1.24 Provide the Committee with updates in writing in five days on developments and events that could potentially adversely affect SOCs or the public.

This information should be submitted to the Committee shortly after receiving the information or date of incident.

10.
10.

CONCLUDING REMARKS The Committee notes the position of government to implement reforms in state-owned companies and the announcement of the Minister that state-owned companies would not be receiving capital injection from the fiscus.

Furthermore, the Medium Term Budget Policy Statement also announced that there is a need to discuss which state-owned companies are still strategic to the state.
The Committee would like to express its gratitude to the Auditor-General, management of the Department of Public Enterprises, state- owned companies and the parliamentary officials supporting the Committee for their hard work and co-operation during this process.

Report to be considered.

35 409 National Council of Provinces 410 1.
Report of the Select Committee on Transport, Public Service and Administration, Public Works and Infrastructure on the Civil Aviation Amendment Bill [B 44B – 2018] (National Assembly – sec 75), dated 24 November 2021: The Select Committee on Transport, Public Service and Administration, Public Works and Infrastructure, having considered the subject of the Civil Aviation Amendment Bill [B 44B – 2018] (National Assembly – sec 75), referred to it, reports that it has agreed to the Bill.

A.
A.

Process followed by the Committee 1.

The Bill was referred to the Select Committee on Transport, Public Service and Administration, Public Works and Infrastructure on 11 May 2021.

2.

The Department of Transport briefed the Committee on 25 August 2021.

3.

The Committee invited written comment on the Bill in two national newspapers in two official languages, namely English and Afrikaans.
Parliament’s website and social media platforms were used to advertise the invitation for written comment on the Bill in all 11 official languages.

The Committee received three written submissions.

4.

On 17 November 2021, the Committee received oral submissions from three stakeholders and considered responses by the Department to the written submissions received.

5.

On 24 November 2021, the Committee agreed to the Bill.

B.
B.

Recommendation The Select Committee on Transport, Public Service and Administration, Public Works and Infrastructure recommends that the Council passes the Bill.

Report to be considered.

411